Banking 2012 Report issued by CityUK

CityUk issued their annual banking report this morning. Despite the most challenging period since the Great Depression the report highlights the significant contribution banking continues to make to the UK economy. Net exports totalled £25bn in 2010 and the industry accounts for 5% of UK GDP. In addition banks employed 545,200 in the UK, over two-thirds of whom are employed outside of London.

 CityUk issued their annual banking report this morning. Despite the most challenging period since the Great Depression the report highlights the significant contribution banking continues to make to the UK economy. Net exports totalled £25bn in 2010 and the industry accounts for 5% of UK GDP. In addition banks employed 545,200 in the UK, over two-thirds of whom are employed outside of London.

Quoted international highlights follow:-

"International comparisons Assets of the largest 1,000 banks grew by 6.4% in 2010/2011 to a record $101.6 trillion (Chart 1), with the highest growth registered in China. TheCityUK forecasts a further 6% increase in industry assets during 2011/2012. Profits have seen a sharp decline at the outset of the credit crisis but have since recovered nearly to pre-crisis levels. Banks from emerging market countries have on the whole been less affected by the economic slowdown, and are expected to drive growth in the coming years (Chart 2).

In Europe, the increase in sovereign risk in some countries and concerns about government debt levels have spilled over into the banking system, raising the cost of borrowing for many banks and depressing their market capitalisation. Despite the global rise in funding costs, banks around the world have made progress in raising capital ratios. Many banks will need to increase capital levels further as a result of Basel III changes which include higher capital requirements and tighter liquidity rules. A further challenge for the global banking sector in the forthcoming period will be the need to refinance some $3.5 trillion in short-term wholesale funds maturing in 2012 and 2013 (Chart 3). "

What does all of this mean for Jersey given the recent announcnements regarding banking employment. The reality is we are part of a global banking industry which has slimmed as it tries to meet three competing objectives. The first is to meet new capital rules and in a slow growth environment for many that has meant slimming their balance sheets to ensure that their capital reserves meet new requirements. The second is the need to support SMEs in most European economies just as austerity measures bite and demand for borrowing falls. The third is to deliver a return for their shareholders and in a period of subdued profitability; this is all very challenging. That said it is encouraging that Lloyds TSB this morning announced a trading profit in the first three months of the year and has paid off nearly half of it's loans to the UK government.

Encouraging too is the rise in banking activity in emerging markets boosting the top 1,000 banks asset book to $101trn and leading the recovery prospects for the global economy according to the recent  IMF world economic outlook, which predicts that growth is returning, but risks remain.

So are we on the up? Not just yet, European banks in a particular have a long way to go in deleveraging and are inextricably bound up in the Eurozone sovereign debt issues, which will continue to be a brake on growth for some time to come.

That said our industry in Jersey is strongly capitalised so won't feel too much impact from Basel III, and by and large we look after savings as opposed to lending business, so we are not exposed to the problems of the large investment banks. A big factor in our favour is that banking everywhere is trying to wean itself off a reliance on wholesale funding, and we have valuable stable long term deposits which we can upstream to London, Paris and New York, which are then available to support economic activity and the growth that is so badly needed.

Wholesale interest rates appear to be ticking up, which is not such good news for mortgage borrowers, but in time will be welcomed by savers and the retired. This could be an early  indication that markets are anticipating the beginning of the end for the record period of low interest rates.  Base rates could still be where they are for a further two years, alleviating the need for more QE, but the first glimmerings of change which would be a significant boost for our banking industry may just be emerging. One thing is certain. a healthy, functioning banking industry, is a precondition for a healthy and prosperous economy, let's hope recent positive signs continue, to the benefit of all.

 

 

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