Australian banks remain assured, with possible minor issues
Despite worldwide turbulence in financial sectors all around the world. This is most chiefly in the U.S. and Europe. Australia finds that its position is likely nowhere near as perilous. As Australia’s biggest lenders stated this Tuesday, there is a lot of faith in Australia’s domestic sector that similar problems are unlikely to occur there. However, there was a stern warning that the vicious contest over selling home loans and attracting deposits would have a significant impact.
Australia’s favourable position is due to the reforms they undertook following the global financial crisis, so much so that regulators and bankers have full confidence in the sector. They believe they are in a good position to tackle any crises relating to solvency. Other foreign lenders were not able to overcome such issues. This was the case with the recent Silicon Valley Bank crash.
Recently, a prudential regulator in the country carried out a stress test to find how Australian banks would fair in a crisis. They found that even in a worst-case scenario, bank capital would still exceed the minimum. The scenario described would be an unimaginable 11% unemployment, sudden cyber attacks on important financial sectors, with a 43% drop in house prices.
The downside for Australian banks
This is not all good news, unfortunately. Australian banks are resilient against issues plaguing other nations’ banks due to relying on retail deposits and mortgages. However, these very same safeguards may hurt their profits. Executives of leading Australian lenders warned that the increasing competition over loans would likely have a long-term impact on them. This was at a recent meeting in Sydney.
This year, around the equivalent of $200 billion of mortgages expire within the year. This is making clients wary of choosing more expensive options are going elsewhere for better bargains.
Alongside this, there are also rising issues with deposits. Regulators noticed competition for deposits is steadily increasing as banks are worried about bolstering funding. This is after banks profited from raising their loan rates at a greater pace than their deposit rates. The regulators have thus launched an investigation on saving rates this last February.
The aftermath of the numerous banking crises abroad has also impacted the expenses of wholesale funding, raising them considerably. This has forced key banks into refinancing hundreds of billions worth of debt. Early in the month, Macquarie published research that judged an additional cost of roughly 8 to 10 basis points would be necessary over the course of the next three years.