The index, released yesterday, 6 April 2009, showed banking confidence fell to 36 points in the first quarter from 50 points in last year's fourth quarter. Retail banks were a little less optimistic than investment banks about their prospects.
The survey measures performance of the banking, investment management and life assurance sectors quarterly.
Falling confidence reflected subdued consumer income, rising corporate distress and the global liquidity crisis. “The latest confidence readings are symptomatic of worsening economic conditions in many sectors of the economy.” Emilio Pera, lead banking director at Ernst & Young, said the recent reporting season showed times were tough in retail and investment banking.
Most retail banks posted lower profit growth to December, though most investment banks reported positive earnings. Pera said the situation was not improving.
“The index results indicate that in the first quarter of 2009, retail and investment banks reported negative profits growth,” he said.
The recent financial reporting season highlighted bank product portfolios under strain. “Mortgage backed lending, instalment finance and credit card debt were unprofitable or marginally unprofitable for retail banks at this point. Both secured and unsecured lending is feeling the pinch of the gross domestic product contraction.”
A rise in nonperforming loans was hitting profitability. It was no surprise three of the big four banks reported lower retail bank profits in the period to December.
Investment banks were likely to report rising debt this year in spite of falling rates. Profit would come under strain from the global liquidity crunch with resource demand falling and exports hit by lower demand.
The survey found expenses growing faster than revenue, contracting banking employment opportunities, slowing interest and fee income in retail and investment banking and record high credit standards.
For more insight, download the full Ernst & Young Bank Index Report (PDF).
Source: Business Day
Published courtesy of
