Reserve warns banks against going too fast into Asia
After a fourfold increase in Australian banks' exposure to Asia since 2009, to $112 billion, the central bank said on Wednesday that it expected the trend to continue in the long term as banks looked for new sources of growth.
It said the push into Asia, which has been led by ANZ, could help to expand the big banks' profits, which could benefit Australia's financial system as a whole.
But it added that "moving into any new market poses a range of risks that banks need to manage carefully".
"These risks would probably be heightened if expansion were overly rapid and not backed by a deliberate and well-founded strategy," it said.
The big banks have a mixed record in overseas expansion.
NAB chief executive Cameron Clyne this month said local banks had "mostly destroyed shareholder value by going overseas" - and NAB's business was still being weighed down by its push into Britain.
While ANZ and Commonwealth Bank are bulking up their presence in Asia, Westpac and NAB have opted for a more gradual approach.
The Reserve made the comments in its Financial Stability Review, which said it was not yet clear if the improvement in global markets marked the start of an economic recovery.
Frequently Asked Questions about this Article…
The Reserve Bank cautioned big banks against expanding into Asia too quickly. In its Financial Stability Review it said moving into any new market poses a range of risks that banks need to manage carefully, and those risks would probably be heightened if expansion were overly rapid and not backed by a deliberate, well‑founded strategy.
The article says Australian banks' exposure to Asia has increased fourfold since 2009, reaching about $112 billion, and the Reserve Bank expects the trend to continue over the long term as banks look for new sources of growth.
ANZ has led the push into Asia. The article notes ANZ and Commonwealth Bank are bulking up their presence in the region, while Westpac and NAB have taken a more gradual approach.
Yes — the Reserve Bank said the push into Asia could help expand the big banks' profits, which in turn could benefit Australia's financial system as a whole. However, the Bank also emphasised that these gains depend on managing the risks of overseas expansion.
The Reserve Bank highlighted that entering new markets brings a range of risks, and those risks are likely to be greater if expansion is too rapid or not supported by a deliberate, well‑founded strategy. The Bank urged careful risk management.
The article describes the record as mixed. NAB chief executive Cameron Clyne said local banks had "mostly destroyed shareholder value by going overseas," and NAB's business was still being weighed down by its push into Britain.
The Reserve Bank made the comments in its Financial Stability Review, which assessed the growth in banks' Asian exposure and warned about the risks of overly rapid overseas expansion.
Based on the article, pay attention to how quickly a bank is increasing its exposure to Asia, whether management describes a deliberate, well‑founded strategy, and any warnings from the Reserve Bank or bank leaders about the risks of overseas expansion—these factors can affect future profits and risk profiles.
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