So far Australia has been relatively unaffected by the toxic assets that have caused chaos in financial markets abroad. But now Australia’s banks are now being hit by bad debts as recession deepens.
With less exposure to toxic assets than some of its foreign counterparts, Australian banks have avoided the disasters that unfolded offshore.
But as it enters a recession, banks face lower lending, higher funding costs and growing bad debt as unemployment rises and businesses feel the pinch.
The CFO of Australia’s biggest lender, National Australia Bank, Mark Joiner said the country had been relatively protected from the financial industry meltdown abroad.
The country’s biggest lender’s, National Australia Bank, bad debt charges rose two and a half times to almost .3 billion in the first half, partly due to its involvement in the troubled UK banking sector.
Australia’s fourth biggest bank reported a bigger than-expected 43 percent in half-year profit with large exposures in Asia.
Joiner said that Australian banks were likely to see three waves as the recession deepens.
Bad debts in institutional lending arms as high profile companies get into trouble, then among SME’s that are either reliant on exports or discretionary spending, followed by a wave in retail normally associated with an increase in unemployment.
[Mark Joiner, CFO National Australia Bank]: “I think the Australian banks are more similar than they are
different – they are going to experience the three waves of bad debts, maybe to varying degrees.”
Though conditions look set to remain tough for the rest of the year, Joiner believes Australian banks’ core business is strong and that bad debts are not going to significantly undermine the profitability of lenders through this cycle.