It is imperative for banks to have a better prediction of their losses so that their capital position will be better reflected
IT may seem strange to analyse bank losses at a time when major banks, even the taxpayer-owned ones, are profitable.
Moreover, major economies are also said to be turning around. So why would we be so worried about bank losses?
According the analysts at Barclays, this is related to the bank's risk-weighted assets.
With
so much focus on capital and the need to boost capital for the
taxpayer-owned banks, it is inevitable that the question on losses would
pop up.
That's when the banks accurately forecast the capital required.
However,
if they do not have a fairly accurate idea of the losses they may be
incurring, they may not be allocating enough capital buffer for it.
Therefore,
the analysis on bank losses should be seen in a positive light as it
helps to shed information early on the capital position of the bank.
The
startling fact is that the banks themselves may not be able to predict
their losses with a fair degree of accuracy, said the Telegraph.
UK,
European and Asian banks, on average, forecast losses of nearly 30%
higher than those they actually faced, the survey by analysts at
Barclays found.
According to the report, Lloyds and HSBC
predicted a default rate on their lending portfolios more than 50% above
what they actually experienced.
Barclays was found to have been
too pessimistic, particularly with assets in its investment bank where
it forecast a default rate 78% higher than in reality.
“Most of
the time banks' PDs (predicted defaults) are lower than forecast,
suggesting a degree of conservatism,” the analysts said, as quoted by
the Telegraph.
“The forecasting errors' can be massive,
which raises questions over both their predictability and hence
meaningfulness of the resulting risk weighted assets,'' they said.
It
is therefore imperative for banks to have a better prediction of their
losses so that their capital position will be better reflected.
Banks' boards of directors are fortifying themselves with new knowledge.
HSBC,
the largest British bank, has appointed former director-general of
British Security Service, Sir Jonathan Evans, onto its board, with
expertise in counter terrorism and cyber threats.
With the
accusations of money laundering, these major banks are coughing up a lot
of money to engage top guns that can deal with the intricacies of it
all.
Before terrorim, it was risk posed by over dabbling in derivatives. Banks engaged armies of risk and compliance oficers
Whether these counterrorism and cyber threat themes really emerge into trends remains to be seen.
A survey by pension fund The Scottish Widow indicated that in 10 years' time, Britons will have to work till 70.
They do not have enough savings to last through, as they are currently caught up in daily living expenses, it was reported in The Guardian.
That sounds chilling but fast becomig a reality soon in many other countries.
Many will start rushing for health and pharmaceutical products to strengthen themselves while others will just struggle on.
>Columnist Yap Leng Kuen reckons it's easier to think positive.
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Showing posts with label Bank losses. Show all posts
Showing posts with label Bank losses. Show all posts
Thursday, June 6, 2013
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