The big theme in many banking markets around the world in 2004 was consumer lending and mortgages. And with the substantial growth in these areas, along with the benign credit environment that has existed, it seems possible that the record profits achieved by banks around the world in 2003 ($417.4bn by the Top 1000 banks) will be exceeded in 2004. The big question, however, is whether these relatively stable conditions can continue into 2005 in the light of potentially dramatic market changes that include, among others, a sliding dollar, rising interest rates and the introduction of new accounting standards.
Although banks appear to have ended 2004 relatively unscathed and in buoyant mood, the outlook for 2005 does not appear quite as sanguine and looks vulnerable to increasing volatility. Rating agency Standard & Poor’s takes a modest view and “expects the profitability of European banks to remain satisfactory in 2005, although the end of the long-term decline in interest rates and the related boom in mortgage borrowing will likely constrain earnings growth.” It sees a not dissimilar outlook in other markets, including the US.
