FINANCIAL STABILITY REVIEW – MARCH 2006
List of tables
Table 1: World GDP Growth
Table 2: Selected Emerging Market Debt Issues in Local Currencies
Table 3: House Prices
Table 4: Personal Credit
Table 5: Owner-occupier Housing Debt
Table 6: Annual Profit Results
Table 7: Banks' Australian Commercial Property Exposures
Table 8: Australian-owned Banks' Foreign Exposures
Table 9: Traded Market Risk
Table 10: Australian Banks' Offshore Debt Securities
Table 11: Long-term Ratings of Australian Banks
Table 12: Long-term Ratings of Selected General Insurers
Table 13: Superannuation Assets
Table 14: Community Expectations of Government Bail-outs
Table 15: Supervisor of Banks, Building Societies and Credit Unions
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Boxes
Table A1: Commercial Property Prices
Table C1: Foreign Currency Hedging by Banks
Table C2: Foreign Currency Derivatives Used by Banks
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Articles
The Structure of the Australian Financial System
Table 1: Funds Under Management
The Performance of Australian Residential Mortgage-backed Securities
Table 1: Ratings Changes of Australian RMBS
Table 1: World GDP Growth
Year-average, per cent(a)
|
2004 |
2005
Estimate |
2006
Consensus forecasts
(March 2006) |
|
| United States |
4.2 |
3.5 |
3.3 |
| Euro area |
1.8 |
1.4 |
2.1 |
| Japan |
2.3 |
2.8 |
2.9 |
| China |
10.1 |
9.9 |
9.1 |
| Other east Asia(b) |
5.9 |
4.8 |
4.9 |
| World |
5.1 |
4.6 |
4.6 |
| Australia’s trading partners(c) |
4.9 |
4.5 |
4.4 |
|
| (a) Aggregates weighted by GDP at PPP exchange rates unless otherwise specified |
| (b) Weighted using market exchange rates |
| (c) Weighted using merchandise export shares |
| Sources: CEIC; Consensus Economics; IMF; RBA; Thomson Financial |
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Table 2: Selected Emerging Market Debt Issues in Local Currencies
2005 onwards
|
Issue rating |
Maturity
date
|
Coupon
rate |
Amount
issued(a) |
Market |
|
Moody’s/S&P |
|
Per cent |
US$m |
|
|
| Brazil |
Ba3/BB |
Jan 2016 |
12.5 |
1,480 |
Global |
| Colombia |
Ba2/BB |
Oct 2015 |
12 |
570 |
Global |
| Czech Republic |
A+(b) |
Sep 2020 |
3.75 |
930 |
Domestic |
| Malaysia |
A3/– |
Jul 2025 |
4.84 |
790 |
Domestic |
| Mexico |
– |
Nov 2035 |
4.5 |
60 |
Domestic |
| Russia |
Baa2/BBB+ |
Feb 2036 |
6.95 |
280 |
Domestic |
| South Africa |
– |
Jan 2020 |
7.25 |
980 |
Domestic |
| South Korea |
A3/– |
Mar 2026 |
5.75 |
1,090 |
Domestic |
|
| (a) Local currency amount converted using the exchange rate on the issue date |
| (b) Rated by Fitch |
| Source: Bloomberg |
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Table 3: House Prices
Average annual percentage change
|
Five years to December 2003 |
Two years to December 2005 |
|
|
|
|
ABS |
APM |
REIA |
Residex |
ABS |
APM |
REIA |
Residex |
|
| Sydney |
14.2 |
15.0 |
12.8 |
15.1 |
-4.3 |
-4.3 |
-1.9 |
-2.8 |
| Melbourne |
14.6 |
14.9 |
13.5 |
14.3 |
1.7 |
1.0 |
-1.5 |
4.5 |
| Brisbane |
15.5 |
17.4 |
16.6 |
17.1 |
3.4 |
3.3 |
3.6 |
4.6 |
| Adelaide |
14.2 |
16.0 |
14.3 |
– |
5.1 |
4.9 |
6.5 |
– |
| Perth |
10.4 |
12.8 |
10.1 |
14.1 |
17.7 |
16.2 |
14.7 |
17.6 |
| Canberra |
16.3 |
19.3 |
15.9 |
19.0 |
-0.3 |
0.7 |
-0.3 |
1.2 |
| Australia |
13.8 |
15.2 |
13.2 |
15.2(a) |
1.2 |
0.8 |
0.9 |
4.0(a) |
|
| (a) Excludes Adelaide, Hobart and Darwin |
| Sources: ABS; APM; RBA; REIA; Residex |
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Table 4: Personal Credit
Per cent
| Component |
Share of personal credit |
Year-ended growth |
|
|
|
|
Jan 2006 |
Jan 2004 |
Jan 2006 |
|
| Fixed |
52.7 |
11.9 |
9.7 |
| Credit card |
25.0 |
17.0 |
12.1 |
| Non-credit card revolving |
22.3 |
26.8 |
8.3 |
| of which: secured by housing |
15.2 |
32.0 |
6.9 |
| Total |
100.0 |
15.3 |
10.0 |
| Memo: Margin loans(a) |
16.5 |
15.3 |
31.0 |
|
| (a) Margin loan data are for December 2003 and December 2005, and include some margin loans to business. Margin loans feature in both revolving and fixed credit owing to differences in reporting across lenders. |
| Source: RBA |
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Table 5: Owner-occupier Housing Debt
Per cent, 2003/04 financial year
|
Income
quintile |
Mortgage repayments of
owner-occupiers(a)
Per cent of average after-tax earnings
of households in quintile |
Share of total
owner-occupier
mortgage
repayments(a) |
Share of all
household
net worth |
|
| Lowest |
44.3(b) |
2.4 |
12.5 |
| Second |
28.3 |
7.0 |
15.4 |
| Third |
24.2 |
17.8 |
16.2 |
| Fourth |
20.5 |
29.5 |
20.2 |
| Highest |
16.8 |
43.3 |
35.7 |
|
| (a) Includes interest payments and principal repayments on primary mortgage. |
| (b) ABS analysis of the 1998/99 Household Expenditure Survey suggests that the relatively high reading for the low income group is likely to partly reflect borrowers with access to considerable assets, such as business owners and retirees. |
| Source: ABS |
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Table 6: Annual Profit Results(a)
Five largest banks, consolidated
|
2004 |
2005 |
Growth |
|
$b |
$b |
Per cent |
|
| Income |
|
|
|
| Net interest income |
24.2 |
25.8 |
6.5 |
| Net income from wealth management |
5.4 |
6.6 |
23.3 |
| Other non-interest income(b) |
13.1 |
14.8 |
13.1 |
| |
|
|
|
| Expenses |
|
|
|
| Operating expenses(c) |
22.4 |
23.7 |
5.5 |
| Bad and doubtful debts |
2.3 |
1.9 |
-15.6 |
| Goodwill amortisation |
0.8 |
0.9 |
4.3 |
| |
|
|
|
| Profit(d) |
|
|
|
| Net profit before tax and revaluations |
17.1 |
20.8 |
21.2 |
| Net profit before tax |
17.2 |
21.9 |
27.2 |
| Net profit after tax |
12.3 |
15.6 |
26.7 |
|
| (a) Year to September for ANZ Banking Group, National Australia Bank, St George Bank and Westpac Banking Corporation; year to June for Commonwealth Bank of Australia |
| (b) Includes National Australia Bank’s sale of stakes in AMP, St George Bank, and two Irish banks, and reversal of HomeSide provisions |
| (c) Includes Commonwealth Bank of Australia’s ‘Which New Bank’ restructuring costs and National Australia Bank’s foreign currency options trading losses |
| (d) Before outside equity interests |
| Sources: Banks’ annual reports |
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Table 7: Banks’ Australian Commercial Property Exposures
Per cent, September 2005
|
Growth
|
Share of
total commercial
lending |
Impaired assets
|
|
Year to
September 2005 |
Share of commercial
property exposures |
|
| Office |
20 |
10 |
0.1 |
| Retail |
6 |
7 |
0.1 |
| Industrial |
26 |
4 |
0.0 |
| Residential |
17 |
11 |
0.4 |
| Tourism and leisure |
23 |
2 |
0.1 |
| Other |
27 |
4 |
0.2 |
| Total |
18 |
37 |
0.2 |
|
| Source: APRA |
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Table 8: Australian-owned Banks’ Foreign Exposures
As at December 2005, ultimate risk basis
|
|
|
|
|
|
Total |
of which: |
|
|
|
|
Level |
Share |
Cross-border |
Local |
|
$b |
Per cent |
$b |
$b |
|
| New Zealand |
166.0 |
45.3 |
4.7 |
161.3 |
| United Kingdom |
84.7 |
23.1 |
17.9 |
66.8 |
| United States |
38.3 |
10.4 |
21.2 |
17.0 |
| Other developed countries |
50.5 |
13.8 |
47.3 |
3.2 |
| Developing countries |
15.8 |
4.3 |
10.0 |
5.8 |
| Offshore centres(a) |
10.9 |
3.0 |
6.9 |
4.0 |
| Other |
0.2 |
0.0 |
0.0 |
0.1 |
| Total |
366.3 |
100.0 |
108.1 |
258.2 |
| Memo: Per cent of total assets |
27.0 |
|
8.0 |
19.0 |
|
| (a) Includes Hong Kong and Singapore |
| Source: APRA |
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Table 9: Traded Market Risk(a)
Four largest banks, annual average, per cent of shareholders’ funds
|
2004 |
2005 |
|
| Interest rate |
0.02 |
0.02 |
| Foreign exchange |
0.01 |
0.01 |
| Other(b) |
0.02 |
0.01 |
| Diversification benefit |
-0.01 |
-0.01 |
| Total |
0.04 |
0.04 |
|
| (a) Value-at-risk is calculated using a 99 per cent confidence interval and one-day holding period. |
| (b) Other market risks include commodity, equity, prepayment, volatility and credit-spread risk. |
| Sources: Banks’ annual reports |
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Table 10: Australian Banks’ Offshore Debt Securities
Per cent of total outstanding, as at December 2005
| Market of issue |
Currency |
Total |
|
|
|
|
AUD |
USD |
EUR |
GBP |
Other |
|
|
| United Kingdom |
6.0 |
21.6 |
21.1 |
12.5 |
10.5 |
71.7 |
| United States |
0.1 |
10.6 |
0.5 |
0.0 |
0.0 |
11.4 |
| Hong Kong |
0.4 |
4.7 |
0.1 |
1.4 |
2.0 |
8.5 |
| Japan |
0.5 |
0.2 |
0.0 |
0.0 |
1.5 |
2.2 |
| Other |
1.3 |
2.1 |
0.5 |
0.5 |
1.8 |
6.2 |
| Total |
8.3 |
39.3 |
22.3 |
14.3 |
15.8 |
100.0 |
|
| Source: APRA |
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Table 11: Long-term Ratings of Australian Banks
As at 23 March 2006
|
Standard & Poor’s |
Moody’s |
Fitch |
|
| Adelaide Bank |
BBB+ |
Baa2 |
– |
| AMP Bank |
A- |
A3 |
– |
| ANZ Banking Group |
AA- |
Aa3 |
AA- |
| Arab Bank Australia |
– |
Baa2 |
A- |
| Bank of Queensland |
BBB+ |
Baa2 |
BBB |
| BankWest |
A+ |
A1 |
– |
| Bendigo Bank |
BBB+ |
– |
BBB+ |
| Commonwealth Bank of Australia |
AA- |
Aa3 |
AA |
| HSBC Bank Australia |
AA- |
A1 |
– |
| ING Bank (Australia) |
AA |
Aa2 |
– |
| Macquarie Bank |
A |
A2 |
A+ |
| National Australia Bank |
AA- |
Aa3 |
AA |
| St George Bank |
A+ |
A2 |
A+ |
| Suncorp-Metway |
A |
A2 |
A |
| Westpac Banking Corporation |
AA- |
Aa3 |
AA- |
|
| Sources: Fitch; Moody’s; Standard & Poor’s |
|
|
|
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Table 12: Long-term Ratings of Selected General Insurers
As at 23 March 2006
|
| Allianz Australia Insurance |
A |
| Insurance Australia |
AA |
| QBE Insurance Australia |
A+ |
| Suncorp-Metway Insurance |
A |
| Vero Insurance (Promina) |
A+ |
|
| Source: Standard & Poor’s |
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Table 13: Superannuation Assets
Per cent, September 2005, unconsolidated
| Fund type |
Year-ended
percentage
change |
Share of
total
assets |
|
| Industry |
34 |
16 |
| Self-managed |
28 |
23 |
| Retail |
23 |
33 |
| Public sector |
21 |
17 |
| Corporate |
12 |
9 |
| Other(a) |
-29 |
2 |
| Total |
22 |
100 |
|
| (a) Balance of life insurers’ statutory funds |
| Source: APRA |
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Table 14: Community Expectations of Government Bail-outs
Per cent of survey respondents
|
Type of Claim |
| |
|
| Response |
Main
deposit
account |
Payment from
a general
insurer(a) |
|
| Guarantee or government likely to step in |
60 |
50 |
| of which: |
|
|
| – guarantee |
22 |
21 |
| – government likely to step in(b) |
37 |
29 |
| No guarantee and government unlikely to step in |
10 |
31 |
| Unsure about guarantee, but government unlikely to step in |
21 |
12 |
| Unsure whether government would step in |
9 |
6 |
|
| (a) Numbers do not add to 100 per cent due to rounding. |
| (b) Excludes respondents who indicated that deposits were guaranteed by their own institution and the government was likely to step in. |
| Source: RBA |
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Table 15: Supervisor of Banks, Building Societies and Credit Unions
Per cent of survey respondents(a)
|
| APRA |
14 |
| Australian Bankers’ Association |
10 |
| Australian government |
8 |
| Australian Treasury |
5 |
| Reserve Bank |
28 |
| Other/can’t say |
36 |
|
| (a) Numbers do not add to 100 per cent due to rounding. |
| Source: RBA |
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Table A1: Commercial Property Prices
Year-ended percentage change in capital values
|
All commercial property |
Office property |
|
|
|
|
Year to
December 2005 |
Three years to
December 2004(a) |
Year to
December 2005 |
Three years to December 2004(a) |
|
| Australia |
– |
– |
11.7 |
1.9 |
| Canada |
10.1 |
1.4 |
9.3 |
-0.9 |
| Ireland |
18.1 |
3.0 |
16.7 |
-2 |
| New Zealand |
8.8 |
2.3 |
8.2 |
1.4 |
| United Kingdom |
12.8 |
5.8 |
13.4 |
-0.2 |
| United States |
11.3 |
5.7 |
11.8 |
3.6 |
| Germany(b) |
– |
-2.1 |
0.0 |
-15.3 |
| Japan(c) |
– |
– |
-7.0 |
-9.9 |
| Singapore |
– |
– |
4.5 |
-9.6 |
|
| (a) Average annual percentage change. |
| (b) Office data relate to Frankfurt only. |
| (c) Data relate to year(s) to September. Office data include retail property. |
| Sources: Investment Property Databank; Japan Real Estate Institute; Jones Lang LaSalle; Property Council of New Zealand; Singapore Urban Redevelopment Authority; US Federal Reserve |
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Table C1: Foreign Currency Hedging by Banks(a)
As at March 2005
|
A$b |
|
| Net FX position on debt |
-186 |
| Derivative positions to hedge debt |
168 |
| Net FX position on debt (after derivatives) |
-18 |
|
|
| Foreign equity assets |
33 |
| Derivative positions to hedge equity |
-10 |
| Net FX position on equity (after derivatives) |
23 |
|
|
| Foreign currency position (after derivatives) |
5 |
|
| (a) Negative values indicate a net foreign currency liability position. |
| Source: ABS |
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Table C2: Foreign Currency Derivatives Used by Banks(a)
Notional values outstanding in A$ billion, as at March 2005
|
Long foreign
currency/short
A$ positions |
Short foreign
currency/long
A$ positions |
Net position |
|
| Forward foreign exchange |
483 |
-420 |
64 |
| Cross-currency interest rate swaps |
266 |
-179 |
86 |
| Futures |
87 |
-86 |
1 |
| Currency options |
51 |
-48 |
3 |
| Other derivatives |
1 |
0 |
0 |
|
| (a) Negative values indicate a short foreign currency position. Amounts may not add to net position due to rounding. |
| Source: ABS |
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Table 1: Funds Under Management
Consolidated basis(a)
|
1990 |
2005 |
Per cent of total |
|
$b |
$b |
2005 |
|
| Superannuation funds(b) |
128 |
677 |
71 |
| Public unit trusts |
24 |
203 |
21 |
| Cash management trusts |
5 |
38 |
4 |
| Non‑super life insurance |
32 |
23 |
2 |
| Common funds |
7 |
10 |
1 |
| Friendly societies |
8 |
5 |
1 |
| Total |
204 |
955 |
100 |
|
| (a) For each sector, figures exclude assets cross‑invested in other managed funds sectors. |
| (b) Figure includes superannuation funds invested through life offices. |
| Sources: ABS; APRA; RBA |
|
|
|
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Table 1: Ratings Changes of Australian RMBS(a)
Number of individual tranches outstanding as at February 2006
|
Total |
Number that have been: |
|
|
|
|
|
Upgraded |
Downgraded |
|
| Prime RMBS |
|
|
|
| Senior tranches |
356 |
0 |
0 |
| Subordinated tranches |
217 |
74 |
9 |
| Sub-prime RMBS |
|
|
|
| Senior tranches |
40 |
0 |
0 |
| Subordinated tranches |
63 |
3 |
0 |
| All RMBS |
|
|
|
| Senior tranches |
396 |
0 |
0 |
| Subordinated tranches |
280 |
77 |
9 |
|
| (a) Senior tranches refer to all tranches that were rated AAA at issuance. All other rated tranches have been classified as subordinated tranches. |
| Sources: RBA; Standard & Poor’s |
|
