If you think you've seen the worst, you may be mistaken

Over the past two weeks, you have seen a lot of ugly financial results, particularly those from local banks. Profits for last year dropped 70 to 90 per cent.

If you think that is the worst of it, you may be mistaken.

Let's zoom in on the four local banks that have already announced their performance for last year. If you crunch the numbers, you can see that the profit decline is largely a result of big write-downs on investments, mainly in financial products.

Loans turning sour have yet to be a major factor. In fact, most of the banks' management emphasise that they did pretty well in their lending business last year.

Yes, provisions have been increased (by more than 100 per cent in some cases) but that's far from aggressive, given the deterioration of the global economy that we are experiencing. The ratio of impairment allowance to loans ranges between 0.35 and 0.61 per cent, while the non-performing loan (NPL) ratio is still below 1 per cent.

This is not hard to explain. Banks are normally happy to make bigger than necessary provisions in bad times, when poor results are expected, in order to pave the way for write-backs in the future. But when the books are already weighted down by massive investment write-downs, aggressive provisioning is out of favour.