Another good snippet from the BIS quarterly review that’s worth highlighting comes in the observation that banks are losing their raison d’etre due to the erosion of their funding advantages versus non-banks. Which means they’re increasingly resembling listless entities devoid of purpose in a capital shadowland that’s not willing to let them move onto another more deathly plane.
From the survey (our emphasis):
The erosion of banks’ funding advantage limits their effectiveness as intermediaries. There are indications that euro area banks, for instance, passed on some of their relatively high borrowing costs. The average interest rate on euro area bank loans stalled at levels above 3% over the past three years, in spite of falling policy rates. As the cost of funding in bond markets trended downwards, large corporates increasingly faced incentives to bypass banks and tap markets directly (Graph 6, left-hand panel).
They are billed as a quick and easy way for investors to gain access to higher-yielding assets while still providing some protection if interest rates start to rise. They are ETFs which track portfolios of (floating-rate) bank loans.
And they are on fire. Read more
Charts on a certain broken transmission mechanism are popping up everywhere.
First, a chart from Exotix — ECB data from March show that 42 per cent of small businesses in Greece couldn’t get the loans they asked for: Read more
Tough love from Data Explorers on Monday:
Truly talented investors do not whinge during a ‘risk off’ environment like now. Instead, they find a place where the risk vs. reward pay-off is slanted in their favour.
Now when and where did that last happen…
In Tuesday’s FT, Brooke Masters reported on a rather novel approach that some banks are trying to take in order to reduce their capital requirements. The trick is to reduce the predicted loss that would be experienced if a borrower were to default. This is effectively done by getting an insurer to guarantee the future value of the collateral held as security for the loan. Read more
Many banks in the eurozone have a significant international presence. The diversification is a positive if the home market is suffering disproportionately. That being the case, perhaps one could expect further investment in less sickly markets abroad?
Maybe. Read more
Spain says it expects its banks to set aside up to €50bn in further provisions on their bad property assets as part of a new round of reforms for the country’s financial sector, according to the FT. Luis de Guindos, economy minister in the centre-right government that took office two weeks ago after defeating the Socialists, said on Wednesday it was essential that the banks clean up their balance sheets without imposing a burden on the treasury. The €50bn figure, equivalent to about 4 per cent of Spain’s GDP, is higher than private expectations by bankers. That is the path now being taken by the government with Mr de Guindos saying there should be another round of consolidation amongcajas, or savings banks.
Looking forward to the new year yet?
After a likely outright contraction in GDP in 2012, in the creditless recovery that we envisage the pick-up in GDP growth is likely to be slow and shallow.
After seeing 51 banks in Florida fail since the start of 2007, some of the regional survivors are finally beginning to make loans again, reports the Wall Street Journal. The first quarter saw 29 Florida banks increase their total loan volume by at least 5 per cent compared with the end of 2010, according to the Federal Deposit Insurance Corporation. The modest rebound, the WSJ says, is a contrast to the overall decline of 1.7 per cent in total loans at the nation’s 7,574 banks and savings institutions, the fifth-steepest drop in 28 years. But many banks are still struggling to overcome piles of bad loans, while some institutions with plenty of capital are having trouble finding enough eager, qualified borrowers. The paper adds that most of the fastest-growing banks are new, meaning they won’t have made as many loans before the financial crisis erupted.
Here’s a problem for Spain (and to a lesser extent, the US and UK) charted:
China has lent more money to developing nations than the World Bank in the past two years, highlighting new patterns of China-led globalisation and its drive to secure natural resources, reports the FT. China lent at least $110bn to governments and business in other developing countries in 2009-10, surpassing the World Bank’s $100.3bn in loans, mostly on more favourable terms – prompting the World Bank to seek ways to co-operate with Beijing to avoid rivalry over loan deals. Bloomberg meanwhile reports that foreign direct investment in China rose to a in 2010, up 17.4% to $105.7bn from a year earlier, according to official Chinese figures.
As western commercial paper continues to wither, the eastern stuff is on the up.
Bloomberg wrote on Friday about surging commercial paper sales in China — as companies tap the short-term paper instead of getting loans from banks: Read more
Will RBS be the next bank to increase bad loan provisions for Ireland?
That’s the question traders are asking on Thursday morning after KBC followed Lloyds Banking Group and warned of a deterioration in its Irish loan book (alongside irregularities in a British leasing subsidiary). Read more
Bank loan officers say that demand for loans from small US companies fell in the past three months, casting doubt on how much the Federal Reserve can stimulate the economy, the FT reports. Twenty-nine per cent of banks said that demand for loans from companies with sales below $50m had fallen, compared with only 7.1 per cent of banks that reported a rise, according to a Federal Reserve survey of senior bank loan officers. The tepid demand for loans from small businesses reduces the chance of a strong rebound in growth in 2011 and suggests that even rock-bottom interest rates and easier borrowing conditions may not persuade them to invest. Meanwhile Reuters reports that three senior Federal Reserve officials added their voices to the debate on the new round of quantitative easing as they expressed concerns on Monday.
Chinese banks have been ordered to account for around Rmb2,300bn ($340bn) in off-balance sheet loans in a move that could put some lenders under serious stress and require another large round of capital-raising, reported the FT. The China Banking Regulatory Commission, China’s banking regulator, has told lenders they must put all loans sold or transferred to lightly regulated Chinese trust companies back on their books and stop using “informal securitisation” to evade regulatory requirements. If off-balance sheet securitised loans are counted, total new lending in China in the first half of the year reached around Rmb5,900bn, or nearly 30 per cent more than the official figure of Rmb4,600bn.
China’s banks are facing serious default risks on more than one-fifth of the Rmb7,700bn they have lent to local governments across the country, the FT reports, citing senior Chinese officials. China’s commercial banks have identified about Rmb1,550bn in questionable loans to local government financing vehicles – which are mostly used to fund regional infrastructure projects. A senior official from the China Banking Regulatory Commission told the FT these loans would not necessarily all go bad but that the country’s non-performing loan ratio would almost certainly “increase slightly” at the end of the year.
The long-awaited outcome of the Bank of England’s consultation into the type of bank collateral it allows banks to use at its discount window facility (DWF) is out, reports FT Alphaville. And as noted before, the BoE has been keen to expand its accepted collateral in an effort to cut down on so-called ‘phantom securities,’ or originator-made securitisations created specifically for central bank use. Read more
Royal Bank of Scotland is preparing to sell up to £3bn ($5bn) of real estate loans made during the property boom in the largest property disposal from its non-core banking business to date, the FT reports. The disposal is part of a five-year project by RBS under the leadership of Stephen Hester, chief executive, to shed large chunks of its business that the bank can no longer afford to hold.
Italy has extended the moratorium on business debt it began in August 2009, reports FT Alphaville. The agreement, between the Italian Banking Association (ABI) and Confindustria (Association of Industrial Corporates) gives small and medium-sized businesses the ability to put off paying a loan’s principal for up to a year. Read more
Lloyds Banking Group has this year become the biggest provider of loans for private equity-backed takeovers of companies in Europe, outpacing rivals that were league table leaders at the height of the credit boom and nearly tripling the share of the market it had in 2007, reports the FT. The buy-out loans are expected to contribute significantly to Lloyds meeting its target for lending to businesses.
The Bank of Spain released the February data for Spanish banks’ non-performing loans on Monday, and the details aren’t pretty.
Like much else in the wreckage of Spain’s pre-recession property boom, the performance of these banks’ loan portfolios is less than reassuring, Execution Noble’s Joe Dickerson notes: Read more