BANKS FACING DOUBLE WHAMMY OF DIFFICULTIES - A lack of appetite for debt and political pressure to provide cheaper lending, especially to small business and to first time buyers, are combining to hurt the net interest margin that banks are able to generate in the course of their lending. Lower interest rates also mean that deposit and savings rates are much lower - a disincentive to rush to the bank with cash. These factors limit banks' ability to rebuild capital and leads many to believe that nationalisation, rather than the planned recapitalisation of AIB and Bank of Ireland, is the solution.
Brian Lucey, finance professor at Trinity College, says the banks are facing a double whammy from the Government. On the one hand, the Government is saying that as it is injecting €7 billion into the banks, it wants to see some social and economic measures. On the other hand, the banks are facing into an economic storm and are having difficulties in getting good quality lending opportunities and are trying to squeeze resources out of wherever they can.
On interest rates, Professor Lucey says that the current lows rates are generally bad news for the banks. While low interest rates slow down the deterioration of the mortgage market, the banks' 'cushion' for building up future capital has been pretty badly eroded because they can not lend out at high rates any more.
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MORNING BRIEFS - The World Bank has lowered its forecast for China's economic growth this year, cutting its projection of gross domestic product growth this year to 6.5% from the 7.5% it forecast in November last. The World Bank said the global crisis would be a drag both this year and next, mainly because of weaker exports and non-government investment.
*** The giant US insurer AIG will be to to pay back the controversial bonuses it awarded staff after taking US bail-out money. US Treasury Secretary Timothy Geithner also said $165m would be taken from the $30 billion the firm is due to get as part of its government bail-out. The plan comes after Mr Geithner faced heavy criticism for his handling of the increasingly controversial issue. Republicans say he should have done more to stop the bonuses being paid.
*** The International Air Transport Association says more business travellers are forgoing executive-class seats and flying economy, especially in Europe. The IATA said airline revenues from business and first-class tickets were down by at least a quarter in January from the same month a year ago.
*** The rate of construction of new homes in the US went up by almost a quarter in February compared with the previous month. Official figures from the US Commerce Department show the building of new homes and apartments rose to an annual rate of 583,000 in the month. In January, the annual rate had fallen to 477,000 homes, the fewest in 50 years. Even with February's big jump in activity, housing construction is still down by almost a half compared with the same month a year ago.
*** Speaking this morning the European Central Bank president Jean Claude Trichet said that 2010 'could be the year of a moderate recovery' if confidence returns to markets and the economy.
*** On the currency markets, the euro is trading at $1.3045 cents and 92.83 pence sterling.
