In a report to clients Thursday, Darko Mihelic from RBC Capital Markets said the country's big lenders will likely need to shore up their credit reserves in the upcoming reporting season, and reckoned there's no imminent sign of a trigger to pull their stocks out of the current malaise.
Bank stocks have been pummelled as central banks move more aggressively to tame inflation. While commercial banks benefit from higher rates as they lift interest income, an aggressive tightening cycle can also prompt concern about a recession and loan defaults by clients. Mihelic noted that the big U.S. banks that recently reported second-quarter results built US$1.1 billion in reserves during the period, fully reversing the amount they released from reserves in the first quarter.
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