The results of the International Monetary Fund’s (IMF’s) Article IV Report on Australia show that local banks have “weathered the global financial turmoil reasonably well to date”.
The analysis showed that while banks’ profits had been affected, their capital is “sufficient to withstand even relatively large shocks”.
The IMF report said that while the global financial turmoil had had limited direct impact on Australian banks, it did highlight some potential vulnerabilities, such as a reliance on wholesale funding and exposure to the housing market.
The IMF highlighted the importance of conducting regular ‘stress tests’, “something that is already being done by Australian regulators in the context of Basel II”.
But the report noted that the “asset quality of small banks is not as strong as that of the four large banks”, but did find them to be “financially sound” as a group.
While the capitalisation and profitability of the smaller banks were in line with the larger banks, their impaired assets are higher.
However, this ratio is still very low by international standards, the IMF report found.
“As of June 2008, non-performing loans accounted for only 0.4 per cent of the value of housing loans on banks’ books.”
