Aurelia Butler

The guidelines propose an increase in High-Quality Liquid Assets (HQLA) holdings, which will tighten the Liquidity Coverage Ratio (LCR) requirements. Analysts at BofA Securities in a note dated Tuesday believe these changes will be positive for Indian banks and Non-Banking Financial Companies (NBFCs). The changes are expected to have broad implications for liquidity management, growth prospects, and overall financial health.The draft guidelines reflect RBI’s growing concern over the stability of digital-enabled deposits and aim to address the associated liquidity risks. “The calculation for LCR will include an additional run-off factor of 5-15% based on different type of deposit,” the analysts said.The guidelines emphasize the importance of stability in the face of increasing digital transactions, flagging the need for banks to adapt to a rapidly evolving financial ecosystem.While the guidelines are still being developed, the RBI’s focus on managing liquidity risk is clear. This focus may lead banks to adjust their balance sheets, which could temporarily slow growth and slightly impact Net Interest Margins.“In case of the draft LCR guidelines being implemented in current form, the banks expect to see 10-15% impact on LCR,” the analysts said. Most Indian banks currently maintain an LCR buffer well above the regulatory minimum, with many holding a buffer of over 15 percentage points. As a result, the risk of a breach is minimal. However, the new guidelines may force banks to reassess their strategies, particularly in terms of deposit mobilization and loan growth.BofA analysts predict that banks might prioritize profitability over growth in the near term, particularly in the unsecured and low-yield corporate segments. This shift could lead to a deceleration in credit growth, especially in areas that have traditionally been high-risk but high-reward for banks.From a credit perspective, the impact on Indian commercial banks is expected to be positive. The new guidelines are likely to reduce liquidity risk in a bank-run scenario, compelling banks to strengthen their deposit bases relative to loan growth. This, in turn, could improve capitalization levels, which have been under pressure due to rapid loan growth in recent years. BofA analysts note that slower loan growth could help Indian banks rebuild their capital ratios, which have seen a slight decline as of 1QFY25.Moreover, the guidelines could have a stabilizing effect on the credit ratings of Indian banks. Moody’s, in a note dated July 25, 2024, echoed this sentiment, stating that the proposed regulations would be credit-positive for Indian banks. The higher HQLA holdings mandated by the guidelines are expected to bolster liquidity buffers, thereby enhancing the resilience of banks in the face of potential liquidity shocks.The proposed guidelines are expected to have a limited impact on Indian corporates. Credit growth has been primarily driven by the unsecured retail sector, with corporate credit growth remaining moderate. BofA analysts believe that any slowdown in credit growth will be concentrated in the unsecured and high-yield corporate segments. Large corporates, including State-Owned Enterprises, which typically have access to various funding sources, are unlikely to be significantly affected.In contrast, NBFCs are expected to benefit from the potential slowdown in bank credit growth. As banks adjust to the new liquidity requirements, NBFCs could see increased demand, particularly in the retail lending space. This shift could provide a tailwind for NBFC growth, offering these institutions an opportunity to expand their market share in segments where banks might scale back.Indian banks’ financial results in the first quarter of FY25 was impacted by rapid loan growth. While their credit quality remained strong, their capitalization weakened slightly. Key capital ratios declined modestly, with average CET1, Tier-1, and CAR ratios at 14.7%, 14.9%, and 16.3%, respectively, as of June 2024. This decline was due to rapid loan growth outpacing capital accumulation.However, asset quality remained strong, with gross and net non-performing loan ratios at 1.8% and 0.4%, respectively. Earnings grew by 10.7% year-over-year in the first quarter, despite some margin compression. Private sector banks continued to outperform public sector banks, with stronger fundamentals and better capitalization. More

With the next policy meeting just two weeks away, a growing number of ECB policymakers are lining up behind another rate cut in September and many say that the real debate is about whether to follow up that move with another cut in October. Knot, a moderate conservative on the 26-member Governing Council, took a more measured view, however, and said that deal was not yet done, even if there may be a case for gradually easier policy.”As long as our disinflation path still converges to a return to 2% inflation at or before the end of 2025, then I’m comfortable with gradually taking our foot off the brake,” Knot told a conference panel. “I will have to wait until I have the full data and information set going into that meeting to decide my position on whether September is appropriate,” Knot added. “I would have to do so again in October, December and whenever.”Knot in the past made the case for cuts in September and December, or when the ECB releases fresh economic projections if inflation continues to fall. Markets have now fully priced in a cut next month and at least one more move later this year.Inflation rose to 2.6% in July, but was seen falling to 2.2% this month and most policymakers speaking on and off record argue that price growth trends are broadly in line with the ECB’s own projections. More

BENGALURU (Reuters) – German home prices will stabilise in the coming months and rise 2% in 2025, supported by interest rate cuts, while rents are expected to increase more quickly, according to analysts polled by Reuters.The real estate market in Germany, like many of its peers, boomed on ultra-low mortgage rates during the COVID-19 pandemic. But the German market has suffered its worst correction in decades as the European Central Bank raised interest rates at the fastest-ever pace.Home prices plunged 7.2% last year, the biggest drop since official data were first published in 2000, and fell 1.1% in the first quarter of this year compared with the previous one. They have declined nearly 14% from a peak in Q2 2022 after surging nearly 25% during the pandemic.The ECB reduced interest rates in June and is widely expected to cut again next month, leading to a median conclusion from 12 analysts polled Aug. 19-26 that a rebound is around the corner.Average German home prices, which fell 5.7% in the first quarter, will decline 1.4% this year according to the latest survey, a slight upgrade from a 2.0% drop predicted in May. House prices are forecast to rise 2.0% and 3.0% in 2025 and 2026, respectively. Those predictions were largely based on expectations of a further decline in borrowing costs. The ECB will cut its deposit rate twice more this year and four times in 2025, according to a separate Reuters poll of economists.  “Already the first reduction of the ECB policy rate in June and anticipation for more has led to a stop in the decline of mortgage loans and created conditions for a recovery of demand in housing,” said Kholodilin Konstantin at DIW Berlin.”Stagnating construction coupled with continuing immigration encourages demand increases, paving the way toward rising housing prices in the coming years.” AFFORDABILITYNine of 12 respondents said purchasing affordability for first-time buyers would improve over the coming year.    The prospect of additional government support is also underpinning an expected turn in the market. German Chancellor Olaf Scholz is scheduled to meet politicians, ministries and industry representatives in December in a bid to tackle the crisis. A similar gathering last year failed to produce any significant concrete action. Prospects for improved purchasing affordability are not expected to do much to reduce rental cost pressures in Germany’s real estate market, which prior to the stretch of zero interest rate policy was dominated by tenants.Rents surged over 20% in the second half of 2023, a report from JLL – a global real estate services company – showed earlier this year. Average urban home rents are expected to outpace home prices over the coming year, rising 4-6%, according to the median view.”Due to the tense situation in the construction sector, the stagnation of new construction and only gradually-improving affordability of purchasing properties, the situation in the rental market is not expected to ease anytime soon,” said Carsten Brzeski, global head of macro at ING.”As a result, we expect rents to continue to rise faster than house prices over the next 1-2 years.”(Other stories from the Q3 global Reuters housing poll) More

LONDON (Reuters) -Prime Minister Keir Starmer said on Tuesday he would have to take unpopular decisions, raising the possibility of “painful” taxes on the wealthy and spending cuts to try to fix Britain’s myriad of problems he blamed on Conservative misrule.In a speech in the rose garden of his Downing Street office, the scene of COVID parties under a former Conservative government, Starmer promised to end politics as usual, telling voters he was levelling with them that Britain’s problems would only get worse before getting better.Elected in a landslide victory in July, Starmer has vowed to rebuild British society, saying this month’s anti-migrant riots reflected divisions that have taken hold, stoked by what he described as the Conservatives’ preference for populism.He also blamed the last government for leaving him with a 22 billion pound ($29 billion) black hole, something he said was unexpected and which had forced him to take some difficult decisions such as limiting fuel payments to the elderly.The opposition Conservative Party accuses Starmer’s Labour Party of portraying the fiscal situation as much worse than it is so it can hike taxes after campaigning before the election on an agenda not to raise certain taxes on working people.Starmer said he planned to stick to that pledge, but there would be short term pain in what he said would be “unpopular decisions” for the long term good.”There is a budget coming in October, and it’s going to be painful. We have no other choice … Those with the broader shoulders should bear the heavier burden,” he said in a speech to voters he met during the election campaign, referring to a fiscal statement due on Oct. 30.”We have inherited not just an economic black hole but a societal black hole and that is why we have to take action and do things differently. Part of that is being honest with people about the choices we face and how tough this will be,” he said.”Frankly, things will get worse before we get better,” he told the audience of apprentices, teachers, nurses, small business owners and firefighters.The rose garden last made headlines after it was used by former Prime Minister Boris Johnson and his staff to hold parties during the COVID lockdowns, events that Starmer said had shattered the trust between the public and its politicians.Conservative leadership contender, Kemi Badenoch, who is also the party’s policy chief for housing and communities, said the speech was based on a “dishonest analysis”.”The truth is that Keir Starmer is managing voters’ expectations for a decade of decline,” she said in a statement.PRISON PLACESStarmer, a former director of public prosecutions, said he could not believe as prime minister he had to count available prison places to try to deal with those behind the riots that targeted Muslims and migrants.”Not having enough prison places is about as fundamental a failure as you can get. And those people throwing rocks, torching cars, making threats, they didn’t just know the system was broken, they were betting on it, gaming it,” he said.Starmer said the former Conservative government’s failure to tackle problems, and its focus on the “snake oil” of populism, had widened divisions in society which would take time to heal.He inherited an economy with sluggish growth, which is only now showing signs of improvement. Public sector net debt is at the highest since the early 1960s and the tax burden is on track to hit a near-80 year high.Finance minister Rachel Reeves has said the projected public finances overspend means having to cut billions of pounds of spending.”Those who made the mess should have to do their bit to clean it up,” Starmer said, referring to the water regulator’s new ability to place tough fines on companies responsible for allowing sewage into lakes and rivers.”But just as when I responded to the riots, I’ll have to turn to the country and make big asks of you as well, to accept short term pain for long term good, difficult trade off, but the genuine solution.” More

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