What’s been happening?
Just after the financial crisis in 2008, market soothsayers cited a pharaoh’s dream told by Joseph in the old testament.
In the dream, ancient Egypt experienced seven years of bumper crops and feasts followed by seven years of famine.
The crisis certainly felt biblical and those seven years of famine turned out to be 15 for the UK’s banks. But the pandemic might be an important step in their long healing process.
Coming through the crisis unscathed is a win for the industry, and gives weight to the argument that it's time for regulators to take their foot off the industry's neck.
Management teams would also argue cultures have changed and we'll never again see the risk-taking of the credit boom days. We’ll have to see about that.
For now, all eyes are on the trajectory for interest rates in 2022.
Retail banking operations make money by lending to people and companies at an interest rate higher than the rates they pay to borrow.
Rate increases are generally good for banks because they have an immediate impact on the interest received from new loans, or existing ones that charge a variable rate.
It’s unlikely we’ll see more interest hitting our current account balances any time soon. We might get a free Boots meal deal or discounted train travel though.
Better than a poke in the eye and cheap for banks to shell out.
So rising rates tend to widen the spread between the amount of interest a bank pays and the interest it receives, boosting profits along the way. We saw evidence of this when NatWest
reported its earnings last week. Let's see if Lloyds
can follow suit tomorrow.
And banks, if you’re reading, less of the feasting please. The public wants to see a lean mean dividend-paying machine this time around.