Balance sheets transform
(11 November 2009 – Australia) The Reserve Bank of Australia has said that Australian companies are returning to more conservative balance sheets and are reversing debt.
The RBA’s, John Broadbent, said in a speech, on reconnecting corporate Australia with frozen credit markets, that it is essentially unnecessary as large companies have returned to non-debt sourcing.
Mr Broadbent noted that, earlier in the decade, corporate balance sheets with relatively conservative gearing ratios were described as 'lazy', with boards encouraged to take on additional debt to generate higher returns for shareholders.
These balance sheets would now be considered as 'de rigueur', Mr Broadbent added.
Listed corporates have raised a record amount of equity this year, Mr Broadbent said, totalling some A$60 billion, with issues broadly based across all sectors. This compares with an annual average of around A$20 billion in the three years prior to the financial crisis.
Mr Broadbent noted that the reluctance among banks to issue large corporate loans after being burnt by some prominent collapses has left banks with enough money to keep extending loans to smaller businesses.
Outstandings to smaller entities have risen at an annualised rate of around 5 percent over the past six months, and is about 10 percent higher than its level in mid-2007, prior to the onset of the financial crisis, Mr Broadbent said.
Mr Broadbent noted that, earlier in the decade, corporate balance sheets with relatively conservative gearing ratios were described as 'lazy', with boards encouraged to take on additional debt to generate higher returns for shareholders.
These balance sheets would now be considered as 'de rigueur', Mr Broadbent added.
Listed corporates have raised a record amount of equity this year, Mr Broadbent said, totalling some A$60 billion, with issues broadly based across all sectors. This compares with an annual average of around A$20 billion in the three years prior to the financial crisis.
Mr Broadbent noted that the reluctance among banks to issue large corporate loans after being burnt by some prominent collapses has left banks with enough money to keep extending loans to smaller businesses.
Outstandings to smaller entities have risen at an annualised rate of around 5 percent over the past six months, and is about 10 percent higher than its level in mid-2007, prior to the onset of the financial crisis, Mr Broadbent said.
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