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RESERVE BANK OF AUSTRALIA

Financial Stability Review – March 2006

List of tables

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Chapters

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

Boxes

Table A1: Commercial Property Prices

Table C1: Foreign Currency Hedging by Banks

Table C2: Foreign Currency Derivatives Used by Banks

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)
(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
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
Table 2: Selected Emerging Market Debt Issues in Local Currencies
2005 onwards
  Issue rating
Moody’s/S&P
Maturity
date
Coupon
rate
Per cent
Amount
issued(a)
US$m
Market
(a) Local currency amount converted using the exchange rate on the issue date
(b) Rated by Fitch
Source: Bloomberg
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
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
(a) Excludes Adelaide, Hobart and Darwin
Sources:ABS; APM; RBA; 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)
Table 4: Personal Credit
Per cent
Component Share of personal credit
Jan 2006
Year-ended growth
Jan 2004 Jan 2006
(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
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
Table 5: Owner-occupier Housing Debt
Per cent, 2003/04 financial year
Income
quintile
Mortgage repaymentsof
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
(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
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
Table 6: Annual Profit Results(a)
Five largest banks, consolidated
  2004
$b
2005
$b
Growth
Per cent
(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
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
Table 7: Banks’ Australian Commercial Property Exposures
Per cent, September 2005
  Growth
Year to
September 2005
Share of
total commercial
lending
Impaired assets
Share of commercial
property exposures
Source: APRA
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
Table 8: Australian-owned Banks’ Foreign Exposures
As at December 2005, ultimate risk basis
  Total of which:
Level
$b
Share
Per cent
Cross-border
$b
Local
$b
(a) Includes Hong Kong and Singapore
Source: APRA
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
Table 9: Traded Market Risk(a)
Four largest banks, annual average, per cent of shareholders’ funds
  2004 2005
(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
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
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
Source: APRA
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
Table 11: Long-term Ratings of Australian Banks
As at 23 March 2006
  Standard & Poor’s Moody’s Fitch
Sources: Fitch; Moody’s; Standard & Poor’s
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−
Table 12: Long-term Ratings of Selected General Insurers
As at 23 March 2006
Source: Standard &Poor’s
Allianz Australia Insurance A
Insurance Australia AA
QBE Insurance Australia A+
Suncorp-Metway Insurance A
Vero Insurance (Promina) A+
Table 13: Superannuation Assets
Per cent, September 2005, unconsolidated
Fund type Year-ended
percentage
change
Share of
total
assets
(a) Balance of life insurers’ statutory funds
Source: APRA
Industry 34 16
Self-managed 28 23
Retail 23 33
Public sector 21 17
Corporate 12 9
Other(a) −29 2
Total 22 100
Table 14: Community Expectations of Government Bail-outs
Per cent of survey respondents
Response Type of Claim
Main
deposit
account
Payment from
a general
insurer(a)
(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
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
Table 15: Supervisor of Banks, Building Societies and Credit Unions
Per cent of survey respondents(a)
(a) Numbers do not add to 100 per cent due to rounding.
Source: RBA
APRA 14
Australian Bankers’ Association 10
Australian government 8
Australian Treasury 5
Reserve Bank 28
Other/can’t say 36
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)
(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
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
Table C1: Foreign Currency Hedging by Banks(a)
As at March 2005
  A$b
(a) Negative values indicate a net foreign currency liability position.
Source: ABS
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
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
(a) Negative values indicate a short foreign currency position. Amounts may not add to net position due to rounding.
Source: ABS
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
Table 1: Funds Under Management
Consolidated basis(a)
  1990
$b
2005
$b
Per cent of total
2005
(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
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
Table 1: Ratings Changes of Australian RMBS(a)
Number of individual tranches outstanding as at February 2006
  Total Number that have been:
Upgraded Downgraded
(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
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