banking

Turkey’s banking industry could be damaged unless the central bank reverses last year’s decision to stop paying interest on required reserves, the head of one of the country’s biggest lenders claims.

Suzan Sabanci, chairman of Akbank, told the Financial Times that new rules requiring banks to lodge 15 per cent of short-term lira deposits with the central bank risked fundamentally weakening banks unless they received interest in compensation. “The government is trying to be cautious that the economy doesn’t grow too fast. And I agree with that,” she said. “But we need to be recompensed. They should start paying interest in six months’ time.” Read more

Banks in the quake-affected north-east of Japan will soon be able to borrow longer term from a new scheme worth ¥1,000bn ($11.7bn), offering one-year loans at 0.1 per cent.

The scheme comes on top of ¥21,800bn ($265bn) liquidity made available immediately after the quake and a doubling of the Bank’s asset purchase programme from ¥5,000bn to ¥10,000bn ($121bn). Tokyo has also been involved in an internationally co-ordinated effort to prevent the yen appreciating too sharply. So far, though, the BoJ remains unwilling to buy government bonds, a measure adopted in several other countries since the crisis.

In addition to such measures, at today’s meeting, the Bank judged it necessary to introduce a funds-supplying operation that provides financial institutions in disaster areas with longer-term funds in order to support their initial response efforts to meet the future demand for funds for restoration and rebuilding.

 Read more

Economic sentiment in Cyprus fell sharply in the month to March, helping the small eurozone nation to keep its unenviable position of second-from-last in the sentiment stakes. (Last is Greece.)

The banking sector probably isn’t helping. In a report last week, ratings agency Moody’s estimated that about €2.7bn would be needed to recapitalise the banks if assumptions made in stress tests materialised. Compare that to the €500m fund announced on Monday by Cyprus bank governor Athanasios Orphanides and your economic sentiment might dip a little, too. Read more

“Absent significant shock, notably on the currency, the SNB should be in the position to start tightening the policy rate in the near term.” This from the IMF, as it raised its growth forecast for the Swiss economy to 2.4 per cent this year, after 2010 growth exceeded expectations. The Swiss National Bank has maintained a near zero rate since January 2009, officially targeting a three-month Swiss franc Libor rate of 0-0.75 per cent.

Mortgage lending standards should also be tackled with better regulation, says the IMF, arguing: “The development of lax lending standards in the mortgage market and increasing interest rate risk call for pre-emptive measures.” While a rate rise should work to reduce mortgage lending, its effects would be “limited”, so “concerns related to mortgage lending should be addressed by macro-prudential instruments.” Read more

Ralph Atkins

The sums involved in propping-up Ireland’s banking system are so great – and the chances so small of them falling dramatically any time soon – it was inevitable the European Central Bank would want to find a better, longer term solution.

Currently, the total amount of ECB liquidity and “emergency liquidity assistance” provided by the Irish central bank, both essentially on an ad-hoc basis, is not far south of €200bn.

Hence news at the weekend that the ECB is looking at some kind of facility for eurozone banks in restructuring is not surprising. We have known for some time that the ECB was looking at ways to deal with “addicted banks” – those totally reliant on its liquidity and unable to fund themselves normally in financial markets. Ireland’s banks clearly fall into that category. Read more

No stress tests for ages, then they all come along at once.

Some banks are set to raise their dividends imminently in the US, once the Fed gives them the green light ahead of detailed stress test results released in secret next month. Another practice put on hold in 2009 – share buybacks – will also be back on the menu for some of the 19 large banks. Only those groups that wanted to increase dividends or share buy-backs, or repay government capital, received a call from the Fed on Friday. Those receiving good news will no doubt act swiftly: any of these activities will presumably be seen as a public badge of honour, in the absence of results publication.

Europe, meanwhile, does intend to publish results. Arguably the target audience for Europe’s stress tests is investors and markets rather than the banks themselves. This might give the unfortunate impression that policymakers are aiming for the appearance of a healthy banking sector rather than the real thing. Read more

What constitutes success for the world’s one-day yen policy? To minimise “excess volatility and disorderly movements in exchange rates,” if the G7 statement is anything to go by.

But then “volatility” is all a matter of time period. For instance, it has gone up over the one-day time horizon, with the very sharp weakening of the yen since central bank intervention began this morning. “Disorder” gives a little more wiggle room because it is defined by its effects. It might include, for instance, exchange rate movements that lead to a credit crunch. (One wonders, though, whether a rapid weakening of the yen would also have been classed as “disorderly”.)

Some pundits are saying the G7 action is at least partly self-interested. Certainly their participation is likely to cost them: their domestic currencies will appreciate, and the trades themselves are very likely to lose money as the yen eventually rebounds. Perhaps the tumbling Nikkei – and stocks elsewhere following – made these costs seem smaller. Success in these terms has been achieved – for today. American, European and British equities have gained today.

Other commentators suggest the moves are about defeating the speculators. If we could Read more

Irish banks may need more than the €10bn set aside for them in the bail-out, the Irish finance minister has said.

Michael Noonan said in Brussels today that recapitalising Irish banks could not take place till stress tests were completed, but that he would be “surprised” if €10bn were enough. The Irish Independent claimed over the weekend that “a further injection of between €15bn and €25bn could now be needed”. Mr Noonan told reporters he expected the size of the shortfall to be revealed by stress tests, whose results are due to be published by the end of March. Read more

On top of the $265bn being made available to banks, the Bank of Japan has decided to double its asset purchase scheme to $122bn (¥10,000bn). The decision was made at the Bank’s scheduled monetary policy meeting, at which rates were kept at 0-0.1 per cent.

Liquidity
Of the $265bn (¥21,800bn) being made available to financial institutions, $182.3bn (¥15,000) is available immediately, and $82.6 (¥6,800) over the coming days.

Asset purchases
The Bank’s current Asset Purchase Programme is subject to a ceiling of $427bn (¥35,000bn). This splits into a maximum of $366bn (¥30,000bn) in loans, and a maximum of $61bn (¥5,000bn) stock of outstanding financial assets. It is this latter limit that is to be doubled to $122bn (¥10,000bn), effective today, with assets being bought by the end of June 2012.

Specific details are as follows: Read more

The ECB is succeeding in its mission to wean Irish banks off emergency eurozone support – but at a cost. Data from the Irish central bank suggest that support for Ireland’s banking sector rose €18.9bn in the month to February 25 to stand at €70.1bn (red on the chart). ECB support fell €9bn to stand at €116.9bn (blue on the chart). This means that combined assistance rose €10bn to €187bn, a new record. As you can see on the chart, combined assistance (the total height of the bar) dipped in the month to January, but has now risen again, suggesting banks’ needs are growing.

For the Irish central bank, assistance to the banking sector (under “Other assets”) now constitutes more than a third of total assets. Indeed, assistance for banks is approaching half of the country’s GDP. As David Owen, chief European economist at Jeffries points out: “There is a school of thought that this €70bn or so of emergency liquidity is a contingent liability of the Irish state and so should be treated as such. If so, then outstanding Irish government debt-GDP could soon be heading towards 175 per cent. It will be interesting to see what the IMF says on the subject, when it publishes its assessment of the economy and debt dynamics 15 March.” Indeed it will.