RBA Releases a Report on Credit Losses
As per the research discussion paper released by David Rodgers, the increasing rate of unemployment and household indebtedness may affect the Australian borrowers.
The research paper named “Credit Losses at Australian Banks: 1980–2013”, covers the ex post credit risk experience – the ‘credit loss’ experience – of the Australian banking system. The Australian credit loss experience is dominated by two episodes: the very large losses around the early 1990s recession and the losses during and after the global financial crisis.
The report data shows that that the losses faced in both the periods were on lending that includes housing, business and personal one. So the report uses only loan portfolio data.
If we talk about business sector, the losses during the earlier period totaled around 8½ per cent of lending; losses during and after the global financial crisis were around 2½ per cent of lending, while credit losses on housing loans during the global financial crisis episode were minimal.
“There have been, for example, no large nationwide falls in house prices during recent decades,” the report noted.
If we take these considerations into account, the only thing that we have to focus upon is the poor lending standards, if these continues the same then these could have a larger systemic impact than in the past.”
A closer look at the portfolio composition of Australian lenders indicated that conditions in the business sector, rather than those in the household sector, drove credit losses in Australia during the period studied.
“The data also indicate that the very worst credit loss outcomes – including those that led to the failure of several state government-owned banks in the early 1990s – were driven by poor lending standards,” the report said.
Coming to the conclusion the David Rodgers said, “The historical experience of credit losses at Australian banks described in the paper should help to guide overall understanding of the credit risk they currently face. It supports a continued focus on the analysis of the financial health of the business sector”.