Banks lack capital to support recovery: IMF official

Published: 2009/10/01

ISTANBUL: The International Monetary Fund (IMF) 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 (above), 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 IMF's semi-annual Global Financial Stability Report.

Banks have yet to recognise about US$1.5 trillion (US$1 = RM3.47) in losses for the 2007-2010 period, slightly more than the US$1.3 trillion in losses written down so far, the IMF said.



For banks and non-bank financial institutions, the global writedowns amount to roughly US$3.4 trillion for the period, compared with about US$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.

Capital conservation remains crucial at this stage of the recovery, he said, particularly after the Group of 20 nations decided at a 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." - AFP