Australia bad loans to rise, banks can take shocks, regulators say
Sign up now: Get ST's newsletters delivered to your inbox
The Reserve Bank of Australia is in the midst of its most aggressive tightening campaign in a generation.
PHOTO: REUTERS
Follow topic:
SYDNEY – Australia’s slowing economy and rising interest rates are likely to drive higher housing and business loan losses for banks, regulators said, while adding that lenders’ “unquestionably strong” capital requirements mean they can withstand any shock.
The Council of Financial Regulators (CFR), which includes the Reserve Bank of Australia (RBA), said it will “continue monitoring credit growth, asset price developments, lending standards and systemwide resilience”, according to a statement on Wednesday.
Banks’ “unquestionably strong capital requirements, combined with liquidity coverage ratio and net stable funding ratio requirements to reinforce liquidity and funding resilience, mean the system is well positioned to adjust to evolving economic conditions and other external shocks”, the council said.
The RBA is in the midst of its most aggressive tightening campaign in a generation, having raised interest rates by 3.5 percentage points
It has signalled that borrowing costs are likely to move even higher to counter inflation, though policymakers are also considering a pause to assess the impact of increases to date.
“The council recognised that there is significant variation in experience across borrowers, with a small share of households with high levels of debt relative to their income and low savings and equity buffers experiencing debt-servicing challenges,” the statement said.
Shares of the largest lenders in the country, including ANZ Group, Westpac Banking, Commonwealth Bank of Australia and National Australia Bank, climbed in early Sydney trading on Wednesday.
The CFR’s quarterly meeting was held last Friday to discuss the impact of elevated inflation and rising rates on households and the financial system. Subsequently, members met again to discuss steps taken by the US authorities after the sudden collapse of Silicon Valley Bank.
The Australian Prudential Regulation Authority, in consultation with CFR agencies, “will continue to closely monitor the situation through its intensive supervision of the Australian banking system, which remains strongly capitalised and highly liquid”, the statement said. BLOOMBERG
