Impaired assets continued to rise in the September quarter for Australian banks according to the RBA's quarterly bulletin. Actually it would be more accurate to say they shot up, rising by approximately $4.4 billion, the largest increase since September 1994.
However it is the percentage of impaired assets to total assets which is of most relevance. They also rose sharply to 0.52% from 0.36% in the June quarter. Despite the sharp increase it is still historically low and due mainly to specific impairments rather than system wide deterioration.
Impaired assets as a percentage of the total could go back close to the 1.0% level and still not be particularly bad. I have little doubt that it will get to those levels, it is only a matter of time.
The more interesting question is when does the normal deterioration in this part of the credit cycle turn into a system wide blowout as has happened in the US? Probably not until unemployment really starts to bite and households and corporates being defaulting on their debt on mass.
It is not clear if we will get to that point in Australia, but it cannot be ruled out as a possibility.
Tuesday, 30 December 2008
Labels: Industry - Banks