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RESERVE BANK OF AUSTRALIA

Financial Stability Review – March 2007

List of tables

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Chapters

Table 1: Personal Credit

Table 2: Banks’ Business Lending

Table 3: Banks’ Annual Profit Results

Table 4: Australian-owned Banks’ Foreign Exposures

Table 5: Traded Market Risk

Table 6: Long-term Ratings of Australian Banks

Table 7: Financial Strength Ratings of Selected Large Insurers

Table 8: Assets under Management

Table 9: Financial Soundness Indicators for Australia

Table 10: Distribution of Loans

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Article

Table 1: Leveraged Buyouts of Australian Companies

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Table 1: Personal Credit
Per cent
Component Share of total
Jan-07		 Year-ended growth
Jan-07 Jan-06
(a) Margin loan data are for December 2006, and exclude loans over $10 million but 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 52.3 14.5 9.5
Credit card 27.0 13.1 11.8
Non-credit card revolving 20.7 7.1 8.1
of which: secured by housing 13.9 4.7 6.7
Total 100.0 12.5 9.7
Memo: Margin loans (a) 17.7 34.6 26.2
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Table 2: Banks’ Business Lending
December 2006, by loan size
Loan size Level
$b		 Share of total
Per cent		 Year-ended growth
Per cent
Source: APRA
Less than $500,000 89.9 18.6 −2.1
$500,000 to $2 million 83.3 17.2 16.5
Greater than $2 million 310.4 64.2 27.6
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Table 3: Banks’ Annual Profit Results(a)
2006, five largest banks, consolidated
  Level
$b		 Growth(b)
Per cent		 Per cent of average
assets
(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) Some items are not directly comparable due to the introduction of IFRS
(c) Before outside equity interests
Sources: Banks’ annual reports
Income 50.1 4.6 3.3
Net interest income 29.8 – 2.0
Net income from wealth management 6.3 – 0.4
Other non-interest income 14.0 – 0.9
Expenses
Operating expenses 23.8 −3.3 1.6
Bad and doubtful debts 1.9 0.1 0.1
Profit(c)
Net profit before tax 24.4 14.1 1.6
Net profit after tax 17.0 12.4 1.1
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Table 4: Australian-owned Banks’ Foreign Exposures
December 2006, 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 201.5 46.0 5.8 195.7
United Kingdom 107.0 24.4 22.7 84.3
United States 43.6 10.0 28.2 15.4
Other developed countries 54.9 12.5 49.7 5.2
Developing countries 18.1 4.1 11.3 6.8
Offshore centres(a) 12.5 2.8 7.4 5.0
Other 0.4 0.1 0.4 0.1
Total 437.9 100.0 125.4 312.5
Memo: Per cent of total assets 28.5   8.2 20.3
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Table 5: Traded Market Risk
Four largest banks, annual average value-at-risk, per cent of shareholders’ funds(a)
  2004 2005 2006(b)
(a) Value-at-risk is calculated using a 99 per cent confidence interval and one-day holding period.
(b) Shareholders’ funds in 2006 are reported under IFRS.
(c) Other market risks include commodity, equity, prepayment, volatility and credit-spread risk.
Sources: Banks’ annual reports
Interest rate 0.02 0.02 0.02
Foreign exchange 0.01 0.01 0.00
Other(c) 0.02 0.01 0.02
Diversification benefit −0.01 −0.01 −0.01
Total 0.04 0.04 0.04
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Table 6: Long-term Ratings of Australian Banks(a)
As at 22 March 2007
  Current Last change
    Direction Date
(a) Local currency
Source: Standard & Poor’s
Adelaide Bank BBB+ ↑ October 2004
AMP Bank A− ↑ August 2004
ANZ Banking Group AA ↑ February 2007
Arab Bank Australia A− – January 2007
Bank of Queensland  BBB+ ↑ April 2005
BankWest AA− ↑ August 2006
Bendigo Bank BBB+ ↑ February 2005
Commonwealth Bank of Australia AA ↑ February 2007
HSBC Bank Australia AA ↑ July 2006
ING Bank (Australia) AA ↑ August 2005
Macquarie Bank A – November 1994
National Australia Bank AA ↑ February 2007
St George Bank A+ ↑ January 2006
Suncorp-Metway A+ ↑ March 2007
Westpac Banking Corporation AA ↑ February 2007
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Table 7: Financial Strength Ratings of Selected Large Insurers
As at 22 March 2007
Source: Standard & Poor’s
Allianz Australia Insurance A+
Insurance Australia AA
QBE Insurance Australia A+
Suncorp-Metway Insurance A+
Vero Insurance (Promina) A+
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Table 8: Assets under Management
December 2006, consolidated
  Level
$b		 Share of total
Per cent		 Year-ended growth
Per cent
(a) Includes superannuation funds held in the statutory funds of life insurance offices
Source: ABS
Superannuation funds 596.5 54.4 20.1
Life insurers(a) 209.5 19.1 6.1
Other managed funds 289.9 26.5 11.6
Total 1095.9 100.0 14.9
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Table 9: Financial Soundness Indicators for Australia
Per cent(a), 2005(b)
    Indicator Australian-owned banks(c) All banks(c) 
CORE SET
Banks
Capital adequacy 1 Regulatory capital to risk-weighted assets 10.2 11.3
  2 Regulatory Tier 1 capital to risk-weighted assets 7.5 7.6
  3 Non-performing loans net of provisions to capital 4.6 4.4
Asset quality 4 Non-performing loans to total gross loans 0.6 0.6
  5 Sectoral distribution of loans – (d)
Earnings and
profitability		 6 Return on assets(e) 1.8 1.4
  7 Return on equity(e) 25.3 21.6
  8 Interest margin to gross income 41.9 50.5
  9 Non-interest expenses to gross income 58.4 52.9
Liquidity 10 Liquid assets to total assets(f) 9.8 13.1
  11 Liquid assets to short-term liabilities(f) 22.5 25.1
Sensitivity to
market risk		 12 Net open position in foreign exchange to capital(g) – 0.8
ENCOURAGED SET
  13 Capital to assets 6.9 7.2
  14 Large exposures(h) 69 189
  15 Geographical distribution of loans (d) –
  16 Gross asset position in financial derivatives to capital 42.1 36.1
  17 Gross liability position in financial derivatives to capital 40.2 35.1
  18 Trading income to total income 4.8 5.9
  19 Personnel expenses to non-interest expenses 39.7 49.6
  20 Spread between reference lending and deposit rates (in basis points) 293.6 267.2
  21 Spread between highest and lowest interbank rate (in basis points) 0.0 –
  22 Customer deposits to total (non-interbank) loans – 51.9
  23 Foreign currency denominated loans to total loans – 4.5
  24 Foreign currency denominated liabilities to total liabilities – 20.2
  25 Net open position in equities to capital – –
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Table 9: Financial Soundness Indicators for Australia (continued)
Per cent(a), 2005(b)
    Indicator Australian-
owned
banks(c)		 Non-
bank
FSIs
(a) Unless otherwise indicated.
(b) Unless otherwise indicated, for stock data, reference date is 31 December 2005; flows data cover the year ending 31 December 2005.
(c) The data for Australian-owned banks are globally consolidated, i.e. the domestic operations and overseas branches and subsidiaries are included. The data for all banks include all banks with operations in Australia. The data are reported on either a Licensed ADI or domestic books basis. Licensed ADI data include overseas branches; domestic books data essentially covers the banks’ assets and liabilities in Australia. For more information, see Australia’s FSI metadata on the IMF’s website http://fsi.imf.org/CountryPage.aspx?CtyId=193.
(d) Data for this indicator are presented in Table 10 below.
(e) Before tax and extraordinary items.
(f) Using the ‘broad measure’ of liquid assets as defined in the IMF’s Compilation Guide on Financial Soundness Indicators .
(g) Data are as at March 2005.
(h) Consolidation basis is not applicable.
(i) Data presented on an aggregated resident-based approach (domestic consolidated basis).
(j) Data presented on a ‘domestic books’ approach (i.e. only enterprises resident in Australia are included and all overseas branches and subsidiaries are excluded from the reporting unit).
(k) Debt-service payments only.
(l) Average for year to June 2005.
Sources: ABS; AFMA; APRA; ASIC; Jones Lang LaSalle; RBA
Other financial
corporations		 26 Assets to total financial system assets – 26.2
  27 Assets to GDP – 168.8
Non-financial
corporations		 28 Total debt to equity(i) – 74.6
  29 Return on equity(i) – 14.2
  30 Earnings to interest and principal expenses – 369.6
  31 Net foreign exchange exposure to equity(g) – 11.9
  32 Number of applications for protection from creditors – 646
Households 33 Household debt to GDP – 102.8
  34 Household debt service and principal payments to income(j) – 12.0
Market liquidity 35 Average bid-ask spread in the securities market (percentage of mid-point price) – 4.5
  36 Average daily turnover in the securities market(k) – 2.5
Real estate
markets 		 37 Real estate prices (annual percentage change)    
    (i) Residential real estate prices – 2.2
    (ii) Commercial real estate prices(l) – 11.8
  38 Residential real estate loans to total loans 56.5 –
  39 Commercial real estate loans to total loans 10.4 –
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Table 10: Distribution of Loans
Per cent, December 2005
FSI 5: Sectoral Distribution FSI 15: Geographical Distribution
Sector All banks(a) Country/Region Australian-
owned
banks(a)(b)
(a) FSI 5 is on a domestic books basis; FSI 15 is on an Australian-owned banks basis. See footnote (c) to Table 9 for definitions.
(b) Data for Australia represent loans; data for other countries capture all claims on those countries.
Source: APRA
Residents 95.9 Australia 68.9
Deposit-takers 0.7 Advanced economies 29.8
Central bank 0.0 Other countries 1.3
Other financial corporations 2.2 Central and eastern Europe 0.2
General government 0.3 Developing Asia (incl. China) 0.8
Non-financial corporations 27.7 Middle East 0.1
Other domestic sectors 65.0 Western hemisphere 0.1
Non-residents 4.1 Other 0.0
Total 100.0 Total 100.0
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Table 1: Leveraged Buyouts of Australian Companies*
  Number Average deal value
$m		 Total value of all deals
$m
* Includes debt and equity funding of deals completed and pending; excludes existing debt of bought-out company.
Sources: Australian Venture Capital Journal; Thomson Financial
1999-2004 average 21 42 880
2005 29 62 1,792
2006 28 917 25,670
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