Australians banks well placed, says RBA governor

by Richard Kilner

Story link: Australians banks well placed, says RBA governor

Although Australian banks are well placed to handle the worldwide financial turmoil the nation will see a rise in mortgage defaults, according to Glenn Stevens, governor of the Reserve Bank of Australia.

The governor’s comments, made yesterday, also included his surprise that the credit crunch took as long as it did to manifest itself, given the serial undervaluing of risk.

Stevens also said that the credit crunch had been made worse by the complexity of some financial products.

However, despite significant problems elsewhere, such as Northern Rock in the UK and Bear Stearns in the US, the banks of Australia are achieving best ever profits and remain strongly capitalised, according to the Financial Stability Review issued by the RBA.

Despite that an increase in mortgage defaults is likely to hit Australia, as the costs of higher interest rates get passed onto consumers.

The RBA estimates that approximately 0.3% of all home loans have been defaulted upon, from a combined balance sheet total of $779.8bn.

The rate compares favourably with similar economies, the RBA has stated.

It is unclear whether the central bank intends to continue increasing interest rates, or will maintain the rate to allow its effects to bed in.