SYDNEY, Oct 27 (Reuters) - Australian banks were on a solid
footing, though risks were rising and regulators will keep a
close eye on them over the coming months, a senior central bank
official said on Tuesday.
The Reserve Bank of Australia (RBA) sees threats emanating
from both overseas and at home in the balance sheet of
businesses and households, driven by the coronavirus pandemic
induced recession, assistant governor Michelle Bullock said.
Australia's A$2 trillion ($1.4 trillion) economy is facing
its worst downturn in a generation, putting further pressure on
bank's profits and capital, Bullock said in a speech titled
"Financial Stability in Uncertain Times."
Australia's four major banks - Commonwealth Bank,
Westpac Banking Corp, National Australia Bank
and ANZ Banking Group - are highly profitable and well
However, they are likely to see an increase in
non-performing loans, Bullock said, as business failures are set
to rise and as household balance sheets come under pressure amid
a tapering off of government support.
"The Australian banks are starting from a good position a
lot of capital and strong profits," Bullock said.
"But ... the economic effects of containing the health
crisis are going to put pressure on their profits and their
balance sheets. The main way this will happen is through credit
losses both through business and household loans."
One area of particular concern, Bullock said, was commercial
real estate with uncertainty over prospects for rental demand
for CBD office property, particularly in Sydney and Melbourne.
In both cities, there is substantial new supply coming onto
the market, and vacancy rates have already started to rise.
Property prices could tumble in the current environment, putting
pressure on investors.
Bullock pointed out that banks did not have a large direct
exposure to commercial property though impairment rates were set
to pick up.
($1 = 1.4027 Australian dollars)
(Reporting by Swati Pandey; editing by Jane Wardell)