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
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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.