Banks lack capital to restore credit flows for recovery: IMF

       The International Monetary Fund warned yesterday that banks lack the capital to restore credit flows to levels needed to support a recovery from the global financial crisis.
       "We are on the road to recovery, but this does not mean that risks have disappeared," said Jose Vinals, director of the IMF's monetary and capital markets department.
       "If the question is whether banks have enough capital to supply sufficient credit to support recovery, we believe that the answer is 'no'." Vinals said at a news conference on the release of the fund's semi-annual Global Financial Stability Report.
       Banks have yet to recognise about US$1.5 trillion (Bt50 trillion) in losses for the 2007-2010 period, slightly more than the $1.3 trillion in losses written down so far, the IMF said.
       For banks and non-back financial institutions, the global write-downs amount to about $3.4 trillion for the period, compared with about $4 trillion seen six months ago.
       More than 94 per cent of the writedowns would be taken by US and European banks.
       "Extreme systemic risks have abated, but complacency about banking system repair is still a concern," IMF economists wrote in the report.
       Recently bank balance sheets have benefited from capital-raising efforts and positive earnings, with large US banks in particularly gaining from a stock market rally from March lows.
       But the IMF economists voiced serious concerns that credit deterioration would continue to put pressure on banks' balance sheets.
       Vinals explained that the $1.3 trillion in write-downs had been basically on securities losses, which occurred instantly.
       The potential $1.5 trillion in u ndeclared losses will be found in the weakening of the loan book, which takes longer to ascertain.
       "The big loss recognition will come from loans from the credit book," Vinals said.
       The analysis showed that US banks had recognised slightly more losses than have those in the UK and the euro zone. In Europe, the lag was explained by different accounting standards and a lower frequency of financial reporting.
       The United States has been much more successful in raising capital than European banks in recent months, Vinals added.
       But capital conservation remains crucial at this stage of the recovery, he said, particularly after the Group of 20 nations decided at the Pittsburgh summit last week to set new capital requirements for banks.
       "You need to have some muscle as a bank," Vinals said. "Banks need more capital."
       Vinals criticised "lagging" progress in cleansing impaired assets from balance sheets and urged banks step up their efforts to remove "this uncertainty" to get credit flows moving again.
       Banks also face a "wall of maturities" over the next two to three years of an estimated $1.5 trillion in debt, he said.
       And with recovery from the worst global recession since the Great Depression expected to be long and sluggish, bank earnings are likely to be lower in the post-crisis environment.
       "The tightening of bank regulation under way is expected to reduce net revenues and require more costly self-insurance through higher levels of capital and liquidity," the report said.
       The IMF pointed to "growing confidence" that the global economy had turned the corner, which was underpinning the improvements in financial markets.