Headline gearing reduction masks asset value increases
Sydney, 30 August 2012 – Gearing across corporate Australia is at an all time low with data showing sub 50 percent on a debt to asset basis. Despite this downward gearing trend, data from East & Partners shows that in Western Australia and Queensland gearing has actually increased by over 15 percent since 2008. This broader reduction in gearing has been driven more by asset value increase than pure debt reduction.
As the economy moves into an ‘extended workout’ period, funding limitations,
low confidence and a softening economy are all likely to lead to continued
pressure on ‘non prime’ asset values. While the banks have taken a considered
approach on impaired assets to date, this softer approach may not be optimal as
it becomes more apparent that things are not going to improve for some assets.
Outside already existing impaired assets, there remains risk in terms of new impaired assets as well. The structurally higher Australian dollar is continuing to create chaos among domestic exporting industries outside of mining.
Paul Dowling, Principal Analyst from East & Partners commented, "Balance sheets are benefiting from the twin dynamics of continued debt reduction and business asset value appreciation with corporate borrowers continuing to amass record levels of cash. There is a masking effect, however, for a number of non-mining associated business sectors which remain under persistent stress. The analysis is indicating that the combination of difficult access to credit and low enterprise productivity on top of these dynamics, could well see bank provisioning start to climb again."
Mike Wiblin, Macquarie Equities Research’s Banking Analyst noted, "We believe there is ongoing risk of provisioning top-ups as the recovery continues to be more drawn out than previously expected. Our analysis shows that in a second phase slowdown scenario, NAB would be the most exposed while CBA would be the least. WBC and ANZ appear to equivalent in terms of risk profile. This is counter to consensus and is driven by WBC’s purchase of St George and recent growth in WA/QLD which has led to a worsening in the WBC risk profile relative to ANZ"
Contact:
East & Partners Pty Ltd
Paul Dowling
Principal Analyst
T: +61 2 9004 7848
E: paul.d@eastandpartners.com
Macquarie Equities Research
Michael Wiblin
Banking Sector Analyst, Macquarie Group
T: +612 8232 6089
E: michael.wiblin@macquarie.com
About Macquarie Equities Research
With more than 2,200 stocks under coverage around the world, Macquarie Equities Research is a top 10 global equities research house providing comprehensive research analysis of equities, economics, commodities and ESG. Research is available to permissioned institutional clients via email, secure access online, smartphone apps, and select third-party channels (Bloomberg, Factset, Thomson, Capital IQ, TheMarkets.com).
About East & Partners
East & Partners is Asia-Pacific’s leading specialist business banking market research and analysis firm. East & Partners delivers both bespoke and multi-client research programs and consulting services to client banks and financial services providers across the institutional, corporate, SME, business, investment and financial services markets.
About the Macquarie and East & Partners Business Banking Series
This is the second report in the inaugural Macquarie and East & Partners Business Banking series. The series links East & Partners’ demand-side content with observable outcomes to deliver strong insights into the business banking segment. This approach is a world-first initiative in helping investor outlook and expectations for the bank sector.
Outside already existing impaired assets, there remains risk in terms of new impaired assets as well. The structurally higher Australian dollar is continuing to create chaos among domestic exporting industries outside of mining.
Paul Dowling, Principal Analyst from East & Partners commented, "Balance sheets are benefiting from the twin dynamics of continued debt reduction and business asset value appreciation with corporate borrowers continuing to amass record levels of cash. There is a masking effect, however, for a number of non-mining associated business sectors which remain under persistent stress. The analysis is indicating that the combination of difficult access to credit and low enterprise productivity on top of these dynamics, could well see bank provisioning start to climb again."
Mike Wiblin, Macquarie Equities Research’s Banking Analyst noted, "We believe there is ongoing risk of provisioning top-ups as the recovery continues to be more drawn out than previously expected. Our analysis shows that in a second phase slowdown scenario, NAB would be the most exposed while CBA would be the least. WBC and ANZ appear to equivalent in terms of risk profile. This is counter to consensus and is driven by WBC’s purchase of St George and recent growth in WA/QLD which has led to a worsening in the WBC risk profile relative to ANZ"
Contact:
East & Partners Pty Ltd
Paul Dowling
Principal Analyst
T: +61 2 9004 7848
E: paul.d@eastandpartners.com
Macquarie Equities Research
Michael Wiblin
Banking Sector Analyst, Macquarie Group
T: +612 8232 6089
E: michael.wiblin@macquarie.com
About Macquarie Equities Research
With more than 2,200 stocks under coverage around the world, Macquarie Equities Research is a top 10 global equities research house providing comprehensive research analysis of equities, economics, commodities and ESG. Research is available to permissioned institutional clients via email, secure access online, smartphone apps, and select third-party channels (Bloomberg, Factset, Thomson, Capital IQ, TheMarkets.com).
About East & Partners
East & Partners is Asia-Pacific’s leading specialist business banking market research and analysis firm. East & Partners delivers both bespoke and multi-client research programs and consulting services to client banks and financial services providers across the institutional, corporate, SME, business, investment and financial services markets.
About the Macquarie and East & Partners Business Banking Series
This is the second report in the inaugural Macquarie and East & Partners Business Banking series. The series links East & Partners’ demand-side content with observable outcomes to deliver strong insights into the business banking segment. This approach is a world-first initiative in helping investor outlook and expectations for the bank sector.
Subscribe