Recovery blues

BANKS have not been doing great for some time now.

This is not suprising as their fortunes are heavily tied to economic conditions, business cycles and of course, interest rates.

When times are good, they are the main beneficiaries, likewise, when people hold on to their purse strings in anticipation of tough days ahead, banks are one of the first to suffer a decline in profits.

Yes, while they are still making money, it is safe to say their heydays are long gone, no thanks to the ongoing Covid-19 pandemic.

That said, as soon as the virus is behind us and the economy turns for the better, banks will see a reversal in their fortunes.

This is how.

Business activity will start to pick up, and demand for loans and financing will increase as people start to get more confident.

This will also push up interest rates, which are closely tied to banks’ profits. The higher the rates, the better for them.

Again, while there have been some green shoots here and there, a firm recovery may still be a while away for Malaysia and globally, as Covid-19 cases remain stubbornly high.

This week, Malaysia’s largest bank Malayan Banking Bhd reported results that were largely within expectations.

The lender’s Q4’20 core profit declined 21% on a year-on-year basis largely because of weak income and more provisions for doubtful debts.

Additionally, its loan growth was generally flat.

To say that banks’ earnings may recover this year as suggested by many analysts, could be a little premature.

The possibility is there - the question is when.