Banking industry on recovery path

BANKING profits have recovered considerably from their low levels of last year though they continued to fall in the first quarter of this year.

BANKING profits have recovered considerably from their low levels of last year though they continued to fall in the first quarter of this year.

These were the findings of a survey published by Ernst & Young yesterday.

The survey found that banking confidence had improved from 24 index points in the fourth quarter to 45 currently.

"Banks have undoubtedly recovered from the global liquidity crisis. Though their profits continue to shrink there is nevertheless a turnaround in their financial fundamentals," said Emilio Pera, lead banking and capital markets director at Ernst & Young.

In addition, the rate of profit contraction had abated, particularly for investment banks.

Pera said that, firstly, trends in credit losses and credit impairments had gradually improved after peaking in the second quarter of 2009.

"Retail and investment banks are experiencing lower levels of impairments on their balance sheets, and this follows through to the income statement."

During the recent banking results reporting season individual banks mostly spoke of a year of two halves - in which the first half was characterised by shrinking credit demand and rising impairments.

"This changed considerably in the second half, with impairment losses starting to recede from peak levels, thereby generating relief to operating cost growth," Pera said. - Sapa

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