Australian banks low-risk: economist
Robert Engle, a professor of finance at New York University's Stern School of Business, said the world "looks pretty rosy from Australia's point of view" and that the liquidity measures used during the global financial crisis appeared to be effective.
Speaking at a University of New South Wales-backed banking conference Dr Engle presented a paper outlining measures to identity sources of systemic risk in the global financial system.
The analysis of risk by the 2003 winner of the Nobel Prize in Economics, found that banks in some of Australia's Asian neighbours, such as Japan, posed sizeable risks to the world's financial system.
Japanese banks were the world's largest source of systemic risk, in terms of the cost of recapitalisation, with $US700 billion ($665 billion), while the US was second with just under $US600 billion, he said.
"I think that Australia can play an important role in understanding and helping to stabilise this growth of risk in Asia," Dr Engle said.
France, with $US400 billion, and the UK, with $350 billion, were the two largest sources of systemic risk in Europe, Dr Engle said, adding that France was the country that had to be watched. "If France is in trouble, there's no centre left in the European zone," Dr Engle said.
Australian banks' systemic risk was estimated to be about $US50 million, according to Professor Engle's data.
While Australian banks rank among the top 20 global banks in terms of market capitalisation, global regulators do not regarded them as "systemically important" enough to the global financial system to be required to carry an extra cushion of capital.
But Australia's big banks are still expected to face an extra level of monitoring. Rules are being thrashed out that will force domestically important financial institutions to come under additional regulatory scrutiny by the Australian Prudential Regulation Authority.
Dr Engle's comments came as a credit ratings agency Fitch said yesterday that Australia's banking sector would remain stable and highly profitable, despite a slowing economy and a weak demand for loans.
Tim Roche, Fitch's financial institutions director, said while subdued credit growth and a moderate economic slowdown would pose challenges for Australian banks in 2013, "improvements to funding, liquidity and capital, and continued solid profitability should help them to navigate through these headwinds".
An emerging economic slowdown would likely lead to higher arrears in non-mining businesses, but the increase in bad debt charges was expected to be modest, Fitch said.
The report echoed rating agency Moody's outlook for Australian banks in 2013, which was released earlier this month.
Frequently Asked Questions about this Article…
Yes. Nobel laureate Robert Engle said Australian banks look well capitalised and could withstand another financial crisis, and credit rater Fitch also described the Australian banking sector as likely to remain stable and highly profitable despite a slowing economy.
Robert Engle said the world 'looks pretty rosy from Australia's point of view,' noting that liquidity measures used during the global financial crisis appeared effective and presenting measures to identify systemic risk in the global financial system.
According to Engle's data cited in the article, Australian banks' systemic risk was estimated at about US$50 million, far lower than Japan (around US$700 billion), the US (just under US$600 billion), France (US$400 billion) and the UK (US$350 billion).
No. Although some Australian banks rank among the top 20 global banks by market capitalisation, global regulators do not regard them as systemically important enough to require an extra capital cushion — however, they are still expected to face increased domestic monitoring.
The article says rules are being worked out that will force domestically important financial institutions to come under additional regulatory scrutiny by the Australian Prudential Regulation Authority (APRA), meaning bigger banks can expect closer monitoring.
Fitch said Australia's banking sector should remain stable and highly profitable despite weak loan demand and a slowing economy. Fitch and Moody's both signalled a broadly positive outlook, noting improvements in funding, liquidity and capital that should help banks navigate headwinds.
Fitch warned an emerging economic slowdown would likely raise arrears in non-mining businesses, but it expected any increase in bad debt charges to be modest thanks to improved funding, liquidity and capital positions.
Yes. Engle suggested Australia can play an important role in understanding and helping to stabilise the growth of financial risk in Asia, particularly given higher systemic risk identified in some neighbouring countries such as Japan.
Call 1300 880 160
Start a chat
Schedule a call
