Well, we didn’t need to look into a crystal ball to expect banks’ earnings to go up. And now that they have, might we suggest the future holds more solvent credit markets, or is that bordering on irrational expectations? It’s a near perfect banking paradox. On the one hand record profits and improved risk management make for the ideal opportunity to stimulate private credit. One the other, earnings owe to reduced provisioning, in turn because of record low advances, and really the bigger a bank nowadays the more it just has to sit where it is and laugh all the way to the, well, bank.
Ideally, the current condition would warrant the government enforcing oversight controls through the market regulator and central bank, ensuring private sector expansion. But a government itself hopelessly addicted to debt, and unable to function without financial injections from across the banking sector, is hardly in a position to rout monies to entrepreneurial activity. And helplessly caught in this logjam we shall remain, unless banks themselves posture proactively.
Whichever way our moneylenders bend, one thing is assured – coming weeks and months are not a bad time to go long banking scrips at the local bourse. (Note: this is not investment advisory space). Improved sectoral earnings will definitely bid up the market, which implies the furious bull run has some time before it plateaus. It will be unfortunate if this period does not see banks doing their real job, advancing credit.