Major British Bank performance over the Business cycle

Abstract

This paper investigates the effect of macroeconomic changes particularly the cyclical nature of bank performance using the dataset of Large British Banks over the period 2004-2011. Financial ratios are employed to investigate whether loan loss provision, lending rate, income level and return on asset show a cyclical pattern. The study found a cyclical pattern before, during and after financial crisis 2008. The results show falling asset prices, high capital requirement, reduce lending and loss in bank balance sheet in the British banking sector. Therefore, for macro and financial stability, it is important to understand that to what extend banks are affected by the macro-economy.