Aussie banks’ large corporate exposures under control
(13 December 2005 – Australia) A global study by ratings firm Standard & Poor’s has found that Australian banks’ average level of "single name corporate" exposures is among the lowest in the world.
S&P Financial Services Ratings head, Craig Bennett, said Australia’s relatively low level of concentration, compared with its international peer group, reflected improvements in risk management capabilities and new strategies addressing counterparty concentrations.
"Australian banks have moderated their appetites for large exposure concentrations, as corporate debt requirements have lessened and direct corporate access to markets has improved, and with their increasing orientation toward the retail sector and to a lesser extent small to midsize enterprises," Bennett said.
He said large Australian banks’ average single name concentration exposures were well managed relative to their adjusted total equity (ATE) base at less than five percent across the top 20 corporate exposures.
"In contrast, for the 100 banks in our sample, Standard & Poor’s found that the average size of large single name exposures is equivalent to 6.6 percent of ATE," Bennett said.
Bennett said direct lending represented less than 40 percent of Australian banks’ large exposures in contrast to Europe and that Australian exposures were more likely to be in other forms of commitments to provide funding, credit equivalent market exposures, and contingent exposures.
He said lower direct lending and reduced direct exposure to large companies reflected changes in banks’ risk appetite as well as the lessening attraction of the large corporate segment.
"Australian banks’ average exposure to large corporations is relatively low in relation to their capital and earnings, although single name concentrations exist and should not be overlooked," Bennet said.
"Specifically, within the top 10 corporate exposures of the Australian banks, the highest two represented almost 30 percent of the total exposure. These exposures are typically to well rated or diversified corporations, however, somewhat mitigating our concern," he said.
"Australian banks have moderated their appetites for large exposure concentrations, as corporate debt requirements have lessened and direct corporate access to markets has improved, and with their increasing orientation toward the retail sector and to a lesser extent small to midsize enterprises," Bennett said.
He said large Australian banks’ average single name concentration exposures were well managed relative to their adjusted total equity (ATE) base at less than five percent across the top 20 corporate exposures.
"In contrast, for the 100 banks in our sample, Standard & Poor’s found that the average size of large single name exposures is equivalent to 6.6 percent of ATE," Bennett said.
Bennett said direct lending represented less than 40 percent of Australian banks’ large exposures in contrast to Europe and that Australian exposures were more likely to be in other forms of commitments to provide funding, credit equivalent market exposures, and contingent exposures.
He said lower direct lending and reduced direct exposure to large companies reflected changes in banks’ risk appetite as well as the lessening attraction of the large corporate segment.
"Australian banks’ average exposure to large corporations is relatively low in relation to their capital and earnings, although single name concentrations exist and should not be overlooked," Bennet said.
"Specifically, within the top 10 corporate exposures of the Australian banks, the highest two represented almost 30 percent of the total exposure. These exposures are typically to well rated or diversified corporations, however, somewhat mitigating our concern," he said.
Subscribe