Australia, NZ banking systems resilient to downturn, new report finds
(5 October 2004 – Australia) Despite some challenges up ahead, banking systems in both Australia and New Zealand will prove resilient to moderate economic or industry downturn, according to a new report by ratings agency Standard & Poor’s.
S&P said there were some "red flags" that pointed to potential future stress, such as high private sector indebtedness, strong asset growth by banks, increasing reliance on external liabilities, and house price hikes over recent years.
S& P Financial Services credit analyst Gavin Gunning said the most likely scenario is that the effect of potential stress in the banking sector would be manageable at current rating levels.
"We are monitoring, however, those financial institutions more vulnerable to industry sensitivities, the emergence of any unanticipated weaker economic scenario compared with today’s reasonably stable outlook, or the extent to which recent trends will continue unabated and contribute to a further build-up of potential stress factors," Mr. Gunning added.
The ratings agency said the banking sector in both NZ and Australia was in good shape but that the sector could be headed for more difficult times if there was an unexpected deterioration of economic and industry conditions.
"Although banking stress problems and downturns typically are associated with the corporate and commercial sectors including commercial real estate, the escalation in indebtedness in Australia associated with personal sector borrowing is raising some concerns about future bank credit quality," Gunning said.
"It is not so much a case of if, but when, the shine will come off bank numbers in both countries. Balance sheets at the moment are very clean, with record profits being reported by some institutions. As expected, banks have done well during a period of relative economic prosperity in the past 10 years," he said.
"Our current expectations are for a continuation of stable credit conditions in the Australian banking sector. Should, however, a less likely scenario emerge, such as an unexpected economic downturn, it could bite hard in the banking sector."
Gavin Gunning will discuss Australia’s banking system at the Business Banking 2005 Conference on 10 November. For more information, go to: www.businessbanking2005.com
S& P Financial Services credit analyst Gavin Gunning said the most likely scenario is that the effect of potential stress in the banking sector would be manageable at current rating levels.
"We are monitoring, however, those financial institutions more vulnerable to industry sensitivities, the emergence of any unanticipated weaker economic scenario compared with today’s reasonably stable outlook, or the extent to which recent trends will continue unabated and contribute to a further build-up of potential stress factors," Mr. Gunning added.
The ratings agency said the banking sector in both NZ and Australia was in good shape but that the sector could be headed for more difficult times if there was an unexpected deterioration of economic and industry conditions.
"Although banking stress problems and downturns typically are associated with the corporate and commercial sectors including commercial real estate, the escalation in indebtedness in Australia associated with personal sector borrowing is raising some concerns about future bank credit quality," Gunning said.
"It is not so much a case of if, but when, the shine will come off bank numbers in both countries. Balance sheets at the moment are very clean, with record profits being reported by some institutions. As expected, banks have done well during a period of relative economic prosperity in the past 10 years," he said.
"Our current expectations are for a continuation of stable credit conditions in the Australian banking sector. Should, however, a less likely scenario emerge, such as an unexpected economic downturn, it could bite hard in the banking sector."
Gavin Gunning will discuss Australia’s banking system at the Business Banking 2005 Conference on 10 November. For more information, go to: www.businessbanking2005.com
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