The International Monetary Fund says bank profitability likely will be under pressure for the next five years due to low interest rates and warned lenders against taking on excessive risks once economies begin to recover.
The assessment is based on a simulation of nine advanced economies, the Washington-based IMF said in an analytical chapter released on Friday as a follow-up to its Global Financial Stability Report published last month. While cost cutting and higher fee income should help, they’re unlikely to fully relieve the pressure, the IMF said.
“Our expectation is that there will be continuing pressure no bank profitability for many years to come,” Tobias Adrian, director of the IMF’s monetary and capital markets department, told reporters in an online news conference.
The IMF encouraged financial-sector authorities to incorporate low interest rates into their decisions and risk assessments. The fund said that policy makers will need to strike the right balance between policies that preserve financial stability, maintain the soundness of institutions and support economic growth.
In a separate blog, Adrian said that banks should consider different strategies to preserve and strengthen capital, including restricting dividend payments and share buybacks.