Deutschland: Its more of Debit than Credit...

First came the ignominy of corporate manipulation by Volkswagen in its software. German management principles are as much under stress as the economic firmament.

Then comes the news that exports fell hard and long - by 5.2% in August compared to July, according to Germany's  Statistics Office.  The imports in to Germany too had fallen ; so trade inwards and outwards were both affected.  

Then came the losses for 3rd quarter at Deutsche Bank where losses exceeded $ 6. 7 billion . 

If Europe's  big economy is weakening. markets will capture the economic seismic tremors. 
It seems a seller's day. 

The views expressed are without risk and responsibility. This blog recommends no investment. 

IMF fears forex volatility impacting EMEs like China & India.

The October IMF Global Financial Stability Report has the following comments:

"Company and bank balance sheets are now stretched thinner in many emerging markets, making some of these economies more susceptible to financial stress, economic downturn, and capital outflows. " IMF points out an example in the recent turmoil in China. 

"India’s credit expansion, although relatively more moderate, has not prevented high formation of new stressed loans."

IMF seems to be cautioning that Emerging economies seem quite susceptible. The low cost stimulus economy may be just about creating a possible bubble. Reversion to advanced economies seem advisable.

The views expressed here are without any risk or responsibility.

Return on Assets- India's Public Sector Banks : Is the regulator hesitant?

The X-Inefficiency ...

"The Reserve Bank has specified certain regulatory trigger points, as a part of prompt corrective action (PCA) Framework, in terms of three parameters, i.e. capital to risk weighted assets ratio (CRAR), net non-performing assets (NPA) and Return on Assets (RoA), for initiation of certain structured and discretionary actions in respect of banks hitting such trigger points.    The trigger points along with structured and discretionary actions that could be taken by the Reserve Bank are described below:

ROA less than 0.25% - restrictions on accessing/renewing costly deposits and CDs, entering into new lines of business, bank’s borrowings from inter-bank market, making dividend payments and expanding its staff; steps to increase fee-based income; contain administrative expenses; special drive to reduce NPAs and contain generation of fresh NPAs; and restrictions on incurring any capital expenditure other than for technological upgradation and for some emergency situations."

(Return on Assets (ROA) is a profitability ratio which indicates the net income  generated on total assets. It is to be computed by dividing net income by average total assets.)

Bank	June 2015	Mar 2015	Dec 2014	Sep 2014
Allahabad	0.27	0.37	0.21	0.29
Andhra	0.45	0.42	0.25	0.38
Baroda	0.60	0.35	0.83	0.49
BOI	0.08	-0.03	0.11	0.49
Canara	0.36	0.50	0.66	0.55
Central	0.28	0.24	0.27	0,21
Corporation	0.38	0.08	0.28	0.29
Dena	0.05	0.18	0.25	0.17
IDBI	0.16	0.65	0.13	0.15
Indian	0.43	0.44	0.60	0.69
IOB	0.02	0.05	-0.72	-0.35
Maharashtra	0.16	0.32	0.35	0.33
OBC	0.46	-0.32	0.04	0.55
PNB	0.46	0.20	1.00	0.53
PSB	0.18	-0.30	0.25	0.49
Syndicate	0.42	0.58	0.44	0.50
UCO	0.43	0.35	0.90	0.48
Union	0.55	0.47	0.34	0.42
United	0.17	0.35	0.22	0.21
Vijaya	0.41	0.28	0.11	0.43
D-SIBs
SBI	0.72	0.76	0.62	0.67
ICICI Bank	1.91	1.92	1.90	1.82

Source. Various Websites

 Note: ICICI Bank is in the private sector. 

Views expressed here are academic. The blog bears no risk or responsibility. The blog recommends no investment strategy. 

The credibility crisis in regulation...

On October 2 , one of the Reserve Bank of India's deputy governors spoke in Singapore thus:
 ( we quote extracts from Indian Banking Sector- A Regulatory Perspective Keynote address delivered by  Deputy Governor, Reserve Bank of India at the Global Banking Conference organized by the ‘Mint’ at Singapore on October 2, 2015)

" I would argue that our regulations have been more forward-looking and when needed, more stringent than the internationally agreed standards. "...
"The principle that has guided our action in this regard is that the banks must recognize the problem and work towards resolution rather than ‘pretend and extend’ while also extending a helping hand in genuine and deserving cases so that any productive capacity in the economy is not put to jeopardy."...
" Introduction  of a risk-based approach to supervision" 

VIEWS OF THIS BLOG: 

On 5th October 2015, RBI issued prompt corrective action on Indian Overseas Bank (which incidentally has a presence in Singapore. Was the Monetary Authority of Singapore informed of the IOB predicament? The Deputy Governor said that MOU with supervisors of 29 countries for promotion of greater supervisory co-operation and information exchange had been entered into.)

A corrective action is triggered if a lender's capital adequacy ratio goes below 9 per cent, net non-performing assets go above 10 per cent or its return on assets drops below 0.25 per cent. 

Views expressed here are academic. The blog bears no risk or responsibility. The blog recommends no investment strategy. 

Glenn Stevens, Governor, Reserve Bak of Australia bats for accommodative money policy.:

Monetary Policy Decision left Australian cash rate unchanged at 2 %.
Quotes

• Key commodity prices are much lower than a year ago, in part reflecting increased supply, including from Australia. Australia's terms of trade are falling.
• Overall, global financial conditions remain very accommodative.
• monetary policy needs to be accommodative. 
• regulatory measures are helping to contain risks that may arise from the housing market.
• In other asset markets, prices for commercial property have been supported by lower long-term interest rates, while equity prices have moved lower and been more volatile recently, in parallel with developments in global markets. 
• The Australian dollar is adjusting to the significant declines in key commodity prices.

Un quote


Stevens to Yellen ... are central bankers duty bound to accommodate ? Have they usurped the mantle of the fiscal authorities? While we measure fiscal deficit,  are we letting monetarists get away with  accommodative monetary kiting? Is there a 'moral hazard' in cheap money policy? 

IMF's World Economic Outlook cautions amidst a slowing world economy

We Quote:

• Global growth moderate and uneven, forecast at 3.1 percent this year, 3.6 percent in 2016
• Disparate fortunes between the advanced and emerging market and developing economies
• Lower commodity prices weigh on commodity exporters
• China’s economic transformation—away from export- and investment-led growth and manufacturing, in favor of a greater focus on consumption and services; 
• The fall in commodity prices;  
• the impending increase in U.S. interest rates, which can have global repercussions and add to current uncertainties.
• Disruptive asset price shifts and a further increase in financial market volatility could involve a reversal of capital flows in emerging market economies. Further, renewed concerns about China’s growth potential, Greece’s future in the euro area, the impact of sharply lower oil prices, and contagion effects could be sparks for market volatility.
  • A further appreciation of the U.S. dollar could pose balance sheet and funding risks for dollar debtors, especially in some emerging market economies, where foreign–currency corporate debt has increased substantially over the past few years.
  • Increased geopolitical tensions in Ukraine, the Middle East, or parts of Africa could take a toll on confidence.

Unquote (October 6, 2015)

 

New bull run?

With the US Fed restraining itself from a rate hike,  (or with mixed data holding its hands), global equity markets seem to be on an optimistic note.
The benefit of lower American interest rates may be be more now for Australia, Europe and North America. These may be parking slots for funds which have already left emerging economies. With QE from ECB, the European markets look set to grow. Asian giants China and Japan seem a little unsure of themselves  and so investors may prefer Europe to Asia.

With dollar sagging a shade , gold too looks good.  If gold glitters, commodities will tag along.

Trend is your friend and in the long run we are all dead , as Keynes reportedly said.

The views expressed here are without any risk or responsibility. This blog recommends no investment.