First half bank results point to a boom year

Over the past two weeks the stack of excellent profits' statements from the regional banks has piled up in the in-tray.

But what a performance! Banking profits often fluctuate more due to levels of provisioning than actual business, but this season's crop is almost entirely down to real growth in underlying assets and better management.

It is perhaps unfair to single out individual banks for comment. The important point to note is that performance ranges from modest improvement to 50 per cent plus rises in profit, and significant increases in underlying asset bases.

Oil revenues are the root cause, of course. Last year was good, but this year will be better. Estimates for Saudi oil exports from Samba Group suggest 2004 will top $100 billion, higher even than last year's bumper $86 billion.

So the fortunes of the regional banks will be inextricably linked to the fortunes of the oil market. Thus if you are a long-term bull of the oil market then you should also be buying regional banking shares.

With US light crude back above $41 a barrel at the time of writing this editorial, and the supply/demand situation tending to suggest price movements to the upside, this does not appear an unrealistic outlook. It will be many years until the world can install sufficient oil and gas production capacity to meet rising demand from Asia.

But the regional banking sector also deserves credit for putting its own house in order, and adopting the most modern banking practices. Whether that means the convenience of Internet banking or the latest in credit card technology, the sector has got its act together.

The same can also be said for lending policies which are far more conservative than in comparable periods of economic boom in the past. This should mean that the inevitable cyclical economic downturn in the future does not result in a massive bust.

In the meantime, the future looks very bright for the regional banking sector, and the excellent first half figures may just be a sign of better things to come. But ever-cautious bankers would never say such a thing.