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Bank credit quality remains sound downunder

Bank credit quality remains sound downunder

(Australia) - Deterioration in credit quality and default rates among Australian and New Zealand corporates is expected to slowly abate in the coming year after a phase of intense pressure in the past 12 months according to rating agency Standard & Poor. A continuation of relatively stable credit quality in the Australian and New Zealand banking sector is also anticipated, with a less volatile outlook in the insurance sectors following a turbulent year in 2001.

S&P's 5th annual review of corporate credit quality in these markets covers 341 industrial and infrastructure entities, 49 banks and diversified financial institutions, and 63 insurance companies.

Capitalisation remains a key issue for the Australian and New Zealand banking sector, although asset quality remains very sound by international standards, while the recent profit performance of the major Australian banks has been very good, according to the agency. The major banks were, however, able to absorb the losses of large corporate failures in the past year, the trend has refocussed the sector's awareness of large lending exposures.

Relative stability is returning to the domestic insurance sectors in fiscal 2002 after unprecedented volatility in 2001. Premium increases, improved underwriting practices, and benefits accruing from consolidation in the past few years underpin the prospects for increasing credit stability.
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