IMF cuts crisis losses prediction

The International Monetary Fund (IMF) has cut its forecast for the amount likely to be written off globally in bad loans and investments by 15%.

The total it expects banks to lose between 2007 and 2010 has been cut to $3.4tn (£2.1tn) from $4tn.

The IMF said the change was made because the world economy was growing faster than had been expected.

But it has warned that the improvement should not be taken as an excuse to delay necessary financial reforms.

Its Global Financial Stability Report said that risks to the global financial system had subsided as a result of interventions by governments and central banks, as well as signs of a global recovery.

Not strong enough

"We are on the road to recovery, but this does not mean that risks have disappeared," said Jose Vinals from the IMF.

Its report also warned that banks overall had recognised slightly less than half of their losses, with US banks more advanced in the process than their counterparts in the UK and the eurozone, meaning there is still a great deal of bad news to come.

It said that bank balance sheets had been stabilising, but that banks were not yet in a strong enough position to support the economic recovery.

It based this on the prediction that even the growing earnings expected from banks in the next 18 months would not be enough to offset the amount they would have to write off because of bad loans and investments.

The report is published the day before the IMF's World Economic Outlook, which is expected to revise upwards its forecast for global economic growth in 2010 from 2.5% to 3%.

The IMF warned of the dangers of complacency as signs of economic recovery emerge.

It called on governments to press ahead with reforming their financial systems, including:

* Forcing banks to keep more cash in reserve
* Widening regulation to all institutions which could threaten economies if they failed and making sure they are paying for the risks that they take
* Coming up with regulatory systems that are unaffected by the peaks and troughs of the economic cycle
* Improving international co-operation to help deal with businesses that operate globally.