Thursday, 18 September 2008

Impaired Assets Rising But Not Yet Alarming

The Reserve Bank released it's monthly bulletin today along with certain financial statistics. Regular readers will recognize the chart above. It is the total dollar amount of of impaired assets at Australian financial institutions and also those assets as a percentage of total assets.

Whilst impaired assets are rising sharply, as noted before they are still far from alarming levels. You nwould need to see impaired assets rise above 1.0% of total assets to get worried. However, given the current trend and the events of recent weeks, you should expect impaired assets to continue rising over the next 18 months.

Whilst the globe is currently roiling from the worst economic crisis in recent memory, large corporate failures and home foreclosures in Australia are still relatively tame. However, it is dangerous to think that becasue we dig up rocks and send them to China that we will somehow come out of the current turmoil relatively unscathed. Expect corporate failures to ramp up over the next 12 months and for the major Australian banks to make frequent visits to the confessional.