IMF warns banks on debt of $3.6 trillion

THE world’s banks face a $3.6 trillion “wall of maturing debt” in the next two years and must compete with debt-laden governments to secure financing, the IMF warned yesterday.

Many European banks need bigger capital cushions to restore market confidence and assure they can borrow, and some weak players will need to be closed, the International Monetary Fund (IMF) said in its Global Financial Stability Report.

The debt rollover requirements are most acute for Irish and German banks, with as much as half of their outstanding debt coming due over the next two years, the fund said.

“These bank funding needs coincide with higher sovereign refinancing requirements, heightening competition for scarce funding resources,” the IMF said.

Overall, the IMF said global financial stability has improved over the past six months, but said the most pressing challenges in the coming months would be funding of banks and sovereigns, particularly in vulnerable Eurozone countries.

The Eurozone’s vulnerability to further crises following the rescue of Greece, Ireland and Portugal means governments must ensure multilateral support structures are strong, the IMF said.

It said governments should prioritise fiscal consolidation as the IMF expects debt costs and interest payments to go up. Banks must also focus on balance sheet strength by recapitalising larger institutions and restructuring smaller ones to raise capital buffers, the IMF said.

And the IMF cautioned that new Basel III regulation would be unlikely to affect the problem of bank instability putting unsustainable pressure on financial liquidity.