While I had a few minutes I thought a quick post on the overall impression of the numbers may be of interest. What the numbers are saying is fairly straight-forward. The Australian “Big Four” are all:
- Well capitalised, particularly in comparison to their overseas peers;
- Even with the ANZ in there, they have low loss ratios, again, in comparison; and
- Have little to no risk of going bust any time soon.
If you are in any doubt, have a look at page 15 of the ANZ report. They make the same point that the CBA’s report did – that the APRA version of Basel II is tougher than the way it has been implemented elsewhere. Under APRA rules the ANZ has 7.7% in tier one capital (a strong number). Under FSA rules, it would have about 10% and under the Canadian OSFI rules it would have 10.7% – just in tier one. These are very strong numbers.
The banks really do not need that deposit insurance – there is virtually no chance it will ever be called on. It looks increasingly like it was just a panicked move from our government – a bit of “metooism”, mixed in with some extra taxes oops – guarantee fees. Can we drop it now?
4 comments
26 November, 2008 at 19:56
Steve
If you compare Australian banks to overseas banks, the former have not *yet* had to deal with plummeting property prices. I’m not qualified enough to judge the figures though in that light, but I just thought I’d mention it.
Your comment on the deposit insurance sounds plausible!
26 November, 2008 at 20:27
Andrew
Steve,
You are right, and I hope they do not have to. Apart from anything else, I have a mortgage :)
That siad, the normal Aussie home loan is for up to 80% LVR or it is covered by insurance. They are also full-recourse home loans – i.e unlike in the US your liability is not capped at the value of the house, so even if you walk away, the bank can still come after you for any further outstanding. As a result any losses should be lower than in the US.
In that area, though, if you look at the NAB numbers a bit more deeply they seem to be more pessimistic on the home loans – but even there they are forecasting losses on around 1,000 loans. Not many in the grand scheme of things.
27 November, 2008 at 23:54
Steve
The full-recourse aspect is an interesting one. You would think it would mean in Australia that the banks take fewer losses, while borrowers take more. In Oz, does that then mean it is the people, not the banks, who would be bailed out?
Still, I read today that “The ratio of house prices to median household income in Australia is more than double what it is in the US.” (http://www.property-report.com/em_op_archives.php?id=180) I seem to recall reading too that Australian personal debt levels are amongst the highest in the world. I really can’t see how Australia can be the only western country to buck the trend for housing prices, given these circumstances. But yes I guess the banks will be somewhat safer, given “jingle mail” is not an option, and that loan standards were a little better than the US.
28 November, 2008 at 17:56
Andrew
Steve,
It tends to improve the incentive for the borrowers to engage with the bank, rather than simply walking away. It also tends to make prices a little stickier downwards in Oz as owners are less likely to sell at a loss.
The crucial thing, though, (IMHO) is the better loan standards. Failure to lend to people who cannot afford it tends to increase the overall ability to repay.