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RESERVE BANK OF AUSTRALIA

Financial Stability Review – September 2008

List of tables

Chapters

Table 1: Financial Position and Performance of Selected Large International Banks

Table 2: Key US Policy Responses

Table 3: Credit Growth

Table 4: Banks’ Latest Half Year Profit Results

Table 5: Banks’ On-balance Sheet Assets

Table 6: Banks’ Liabilities

Table 7: Long-term Bank Ratings

Table 8: Financial Strength Ratings of Selected Large Insurers

Table 9: Funds under Management

Table 10: Superannuation Funds’ Assets

Table 11: Public Unit Trusts’ Assets

Table 12: Income per Household

Table 1: Financial Position and Performance of Selected Large International Banks
  Assets Pre-tax profit/loss
since Sept 2007
US$b
At June 2008
US$b
Change since
September 2007
Per cent
(a) Balance sheet change and profits data are six months to June 2008
(b) Includes Bear Stearns
(c) Balance sheet change and profits data are nine months to May 2008
Sources: Bloomberg; banks’ annual reports
RBS(a) 3,882 2.5 −1.4
Deutsche 3,136 5.9 2.9
BNP Paribas(a) 2,863 7.2 7.5
Barclays(a) 2,721 11.3 5.5
HSBC(a) 2,547 8.2 10.2
Citigroup 2,100 −10.9 −30.5
UBS 2,121 −16.4 −29.2
JPMorgan(b) 1,776 −5.5 10.4
Bank of America 1,717 8.7 5.8
Société Générale(a) 1,695 0.4 4.8
HBOS(a) 1,358 2.2 1.7
Goldman Sachs(c) 1,088 4.1 10
Morgan Stanley(c) 1,031 −13 −2.1
Merrill Lynch 966 −11.9 −26.3
Wachovia 812 7.7 −11.8
Lehman Brothers(c) 639 −3 −2.2
Total 30,454 0.4 −44.7
Table 2: Key US Policy Responses
Date Action
17 Aug 07 - Spread between the Primary Credit Facility (discount window) rate and the target federal funds rate lowered from 100 basis points to 50 basis points.
- Discount window terms increased from overnight to 30 days.
12 Dec 07 - Term Auction Facility established for depository institutions, enabling the provision of term funding secured against a range of collateral.
- Reciprocal swap arrangements established with the European Central Bank and the Swiss National Bank.
11 Mar 08 - Term Securities Lending Facility established for primary dealers, enabling the lending of US Treasuries for a term of 28 days secured by a broad range of collateral.
16 Mar 08 - Primary Dealer Credit Facility established to provide overnight loans to primary dealers, secured against a broad range of collateral.
- Spread between the primary credit rate and the target federal funds rate lowered from 50 basis points to 25 basis points.
- Terms of discount window facility for depository institutions increased from 30 days to 90 days.
- Federal Reserve assisted with sale of Bear Stearns to JPMorgan Chase by purchasing (via a special purpose vehicle) close to US$30 billion of Bear Stearns’ most illiquid assets.
13 Jul 08 - Treasury announced a three part plan to: increase the liquidity available to the GSEs; ensure they have sufficient capital by allowing Treasury to purchase equity; and give the Federal Reserve a consultative role in regulating the two firms.
7 Sept 08 - Fannie Mae and Freddie Mac placed into conservatorship under the control of the Federal Housing Finance Agency with a number of measures taken to help these agencies maintain positive net worth and to support the MBS market.
14 Sept 08 - Primary Dealer Credit Facility collateral broadened to closely match the types pledged in the tri-party repo systems of the two major clearing banks.
  - Term Securities Lending Facility collateral expanded to include all investment-grade debt securities, and frequency of certain auctions under this facility increased.
16 Sept 08 - AIG supported with US$85 billion line of credit from the Federal Reserve in return for the US Government taking a near 80 per cent equity stake.
18 Sept 08 - Reciprocal currency arrangements expanded, with further limit increases for European Central Bank and Swiss National Bank and new swap lines established with Bank of Japan, Bank of England and Bank of Canada.
19 Sept 08 - Announcement of plan to purchase up to $700 billion of troubled assets from banks with significant operations in the United States.
- Announcement of temporary insurance arrangements for short-term money market funds.
24 Sept 08 - New swap lines established with the Reserve Bank of Australia, Riksbank, Danmarks Nationalbank and Norges Bank.
Table 3: Credit Growth
  Housing Business
2008 YTD
annualised
2005–07
annualised
2008 YTD
annualised
2005–07
annualised
Sources: Bank of England; ECB; Federal Reserve; RBA
Australia 9.2 12.7 8.9 18.3
Europe 7.2 11.7 13.3 11.6
UK 4.4 10.6 7.2 19.2
US 2.7 11.7 3.4 14.3
Table 4: Banks’ Latest Half Year Profit Results(a)
Consolidated, five largest banks
  2007
$b
2008
$b
Per cent of
average ssets(b)
(a) The six months to March for ANZ Banking Group, National Australia Bank, St George Bank and Westpac Banking Corporation; six months to June for Commonwealth Bank of Australia
(b) Annualised half-year results
Sources: Banks’ annual and interim reports
Income
Net interest income 16.1 17.7 1.7
Net income from wealth management 3.7 1.3 0.1
Other non-interest income 7.3 9.2 0.9
Expenses
Operating expenses 12.3 13.7 1.4
Bad and doubtful debts 1.2 3.1 0.3
Profit
Net profit before tax 13.6 11.5 1.1
Net profit after tax and minority interests 8.7 9.8 1.0
Table 5: Banks’ On-balance Sheet Assets(a)
Domestic books
  Level Change
Jul 08
$b
Jul 07 – Jan 08
$b
Jan 08 – Jul 08
$b
(a) Not adjusted for series breaks
(b) Includes bill financing and some securities holdings
(c) Does not include loans that have been securitised and removed from the balance sheet
(d) Includes amounts due from overseas operations
Sources: APRA; RBA
Liquid assets and marketable securities 413.7 88.6 37.1
Of which:
Cash and deposits with other banks 78.2 1.3 0.4
Australian ADI securities 252.8 83.9 18.0
Loans and advances 1,612.5 172.6 79.0
Of which:
Business credit(b) 635.3 83.4 36.6
Household credit(c) 833.5 62.5 53.6
Intra-group 129.6 24.8 −10.4
Other domestic assets 111.4 5.4 −14.5
Total domestic assets 2,137.6 266.6 101.7
Offshore assets(d) 185.2 10.9 25.3
Total assets 2,322.7 277.6 127.0
Table 6: Banks’ Liabilities(a)
Domestic books
  Level Change
Jul 08
$b
Jul 07 – Dec 07
$b
Dec 07 – Jul 08
$b
(a) Not adjusted for series breaks
(b) Includes securities issued to other banks
(c) Includes deposits due to non residents, derivative financial instruments and all other non-funding liabilities
Sources: APRA; RBA
Deposits 911.4 64.3 96.2
Of which:
Business 282.9 23.1 12.1
Household 360.2 30.0 27.5
Financials 127.3 −18.1 23.5
Intra-group 104.3 28.5 20.2
Debt securities(b) 739.6 133.3 41.2
Of which:
Domestic short-term 283.2 131.8 −26.5
Domestic long-term 103.8 4.5 25.8
Offshore short-term 113.3 −26.0 25.6
Offshore long-term 239.4 23.0 16.2
Other(c) 554.9 78.0 29.2
Total liabilities 2,205.9 275.6 166.6
Table 7: Long-term Bank Ratings(a)
  Outlook Current Last change
Direction Date
(a) Includes all Australian-owned banks, and foreign-owned banks operating in Australia that have a issuer rating from Standard & Poor’s
Source: Standard & Poor’s
Adelaide Bank Stable BBB+ October 2004
AMP Bank Stable A April 2008
ANZ Banking Group Stable AA February 2007
Arab Bank Australia Stable A− -- Jan-07
Bank of Queensland Stable BBB+ Apr-05
BankWest Developing A+ Sep-08
Bendigo and Adelaide Bank Stable BBB+ Feb-05
Citigroup Negative AA Jan-08
Commonwealth Bank of Australia Stable AA Feb-07
Elders Rural Bank Negative BBB Aug-07
HSBC Bank Australia Stable AA Jul-06
ING Bank (Australia) Stable AA Aug-05
Macquarie Bank Negative A -- Nov-94
Members Equity Bank Negative BBB Aug-06
National Australia Bank Negative AA Feb-07
Rabobank Australia Stable AAA Dec-96
St George Bank Watch Positive A+ Jan-06
Suncorp-Metway Stable A+ Mar-07
Westpac Banking Corporation Stable AA Feb-07
Table 8: Financial Strength Ratings of Selected Large Insurers
  Current Outlook
Source: Standard & Poor’s
Allianz Insurance Australia AA− Stable
Insurance Australia Group AA− Stable
QBE Insurance Australia A+ Stable
Suncorp‑Metway Insurance A+ Stable
Table 9: Funds under Management
Consolidated, June 2008
  Level
$b
Share of total
Per cent
Six‑month‑ended annualised
percentage change
Dec 2007
Per cent
Jun 2008
Per cent
(a) Includes superannuation funds held in the statutory funds of life insurers
(b) Cash management trusts, common funds and friendly societies
(c) Superannuation funds plus an estimate of the superannuation assets held in the statutory funds of life insurers
Sources: ABS; RBA
Superannuation funds 799 60.6 6.8 −7.2
Life insurers(a) 182.7 13.8 −0.9 −20.8
Public unit trusts 275.2 20.9 2 −15
Other managed funds(b) 62.7 4.7 −2.7 3.6
Total 1,319.5 100 4.2 −10.5
Of which:
All superannuation assets(c) 947.9 71.8 4.9 −12.1
Table 10: Superannuation Funds’ Assets
Unconsolidated(a), June 2008
  Level
$b
Share of total
Per cent
Six‑month‑ended annualised
percentage change
Dec 2007
Per cent
Jun 2008
Per cent
(a) Not adjusted for cross-investments with other managed fund sectors
(b) Includes non-financial assets
Source: ABS
Cash and deposits 142.8 14.8 −0.5 15.1
Loans and placements 7.7 0.8 6.1 4
Short-term securities 49.8 5.1 17.0 5.9
Long-term securities 51.5 5.3 15.1 −13.0
Equities 297.0 30.7 9.7 −18.5
Units in trusts 149.9 15.5 19.2 −19.2
Other assets in Australia(b) 86.0 8.9 −8.2 35.1
Assets overseas 183.4 19.0 13.4 −17.6
Total 968 100 9.6 −9.2
Table 11: Public Unit Trusts’ Assets Unconsolidated(a), June 2008
  Level
$b
Share of total
Per cent
Six‑month‑ended annualised
percentage change
Dec 2007
Per cent
Jun 2008
Per cent
(a) Not adjusted for cross-investments with other managed fund sectors
Source: ABS
Listed property trusts 125.1 40.8 0.7 −1.4
Listed equity trusts 50.1 16.3 12.5 −6.9
Unlisted equity trusts 100.7 32.8 −3.8 −32.2
Other trusts 30.9 10.1 5.7 −16.8
Total 306.7 100 1.2 −15.7
Table 12: Income per Household(a)
Percentage change
  Annual average,
three years to
the June
quarter 2007
Year to
the June
quarter
2008
(a) Excludes unincorporated enterprises
Sources: ABS; RBA
Nominal disposable income    
before interest 6.9 6.8
after interest 5.9 4.6
Real disposable income    
before interest 4.4 3.3
after interest 3.5 1.2