Bank atlas 2004: Good times ahead for banking

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Bank atlas 2004: Good times ahead for banking

The promised crisis never came and instead last year turned out to be a good one for most banks. This year is set to be even better as banking becomes structurally ever safer, though it will never be entirely risk free.

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LAST YEAR TURNED out to be a good one for banks. Fears of the crisis that never was disappeared, and this year looks even more promising for their bottom line. Banking in the industrialized world is structurally safer than ever even though it will probably never be risk-free. Although just about every major economy has suffered a recession and credit crises in the past few years, global banks have proved resilient. Financial crises might still arise but, unlike in 1988-92, banks are better placed to deal with unforeseen problems. Even so, banks' performance remains linked to credit cycle trends, though large banks have tried to de-emphasize this, relying less on net lending margins and more on fees and commissions from activities that carry less downside risk.

There are a number of reasons why most major banks are in a stronger position than they were 10 to 15 years ago.

First, most are now privately owned, with more transparent corporate governance, more efficient and reliable risk management, and better-defined strategies aiming at shareholder-value creation. They are achieving a higher sustainable profitability and demonstrate a better ability to balance risks and returns.

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