Recovery too doubtful to bank on
In an economic recovery, you would normally expect the banks to lead the rebound on stock markets but they are clearly not the flavour of the day around Asia these days.
Look at the first chart. It aggregates Asia excluding Japan (so big it distorts everything) and the mainland (no finance sector to speak of) and shows the weighted performance of finance sectors relative to their overall markets.
It tells you that, since April 8 last year, the share prices of the region's banks have on average done 27 per cent worse than the region's overall market indices, with no sign of this malaise ending. And malaise is actually the wrong word to use. Malaysia's banking sector has been the best performing of the lot over the period. It is odd and the oddities continue.
Leave alone that it all confounds the axiom that banks are what you want when economies start to recover, it turns out that the poorest-performing finance sectors are those of South Korea, Taiwan and Hong Kong although these are the economies that have shown the strongest performances recently.
The winners are all in the Asean group of countries, where economic recovery remains fragile or highly dubious. Odd indeed.
You might say it is because Asean banks fell much further during the financial crisis that started in mid-1997 and therefore they have now rebounded further too.
There is some truth to this, but it implies that the share prices of these Asean banks did not deserve to fall as far as they did, which is probably not true. Most of them are still in dire shape. Just look at the continuing financial difficulties of Thailand and Indonesia.
A more likely reason for the overall sluggish performance of bank share prices across Asia is that, although banks are still showing growth in deposits, they just cannot seem to find people who wish to borrow and to whom they are happy to lend money.
This is also highly unusual in a recovery in which the aggregate economic growth rate of the region in the fourth quarter was higher than at any time over the past 10 years.
Yet, as the second chart shows, it is clearly the case. Most of that decline in lending growth that it shows for last year was the result of a collapse in lending in Indonesia. Without this the rate of change in lending was roughly zero. Even this, however, is a long way down from what it was pre-1998.
Why is lending growth so sluggish? Good question and many answers suggest themselves. Borrowers are still unwinding their over-borrowings of previous years, particularly in foreign currencies; capital investment is slow anyway; the property business is still down; consumers are still staying out of the shops, you name it.
Perhaps, too, we are undergoing one of these fabled 'paradigm shifts' in finance to something in which banks play a lesser role.
But perhaps the figures tell us that the fabled economic recovery the region has enjoyed is not really worthy of fable.
Perhaps it is an illusion.