Minsky moment for Australian banking?

The usual thing is to make hay when sun is shining. But this does not seem to work in banking/finance. It is when sun is shining that risks emerge. This is also what we also call as Minsky moment.

Satyajit Das has a piece on Australia and says all that glitters is not gold:

If Australia is an economic miracle — the so-called Lucky Country, beneficiary of more than a quarter century of uninterrupted growth — then its banks are its most visible sign of strength. After a near-death experience in the 1990s, they’ve reformed and bounced back dramatically: Returns on equity now average around 15 percent, compared to single digits in the U.S. Share prices and dividends have risen strongly over the past decade. At around twice book value, market valuations are well above global levels.

In fact, though, this ruddy good health masks some deeply worrying trends. The balance sheets of Australia’s biggest banks are far more vulnerable than they may seem on the surface — and that means Australia is, too.

To most observers, this might sound alarmist. Scared straight after a mountain of bad loans nearly brought them down at the beginning of the 1990s, the banks reformed and minimized their international exposure, which meant they were insulated from the worst effects of the Asian financial crisis and the 2009 crash. Today they face little competition in their home market and have benefited tremendously from Australia’s strong growth, underpinned by China’s seeminglyinsatiable demand for the country’s gas, coal, iron ore and other raw materials. During the 2012 European debt crisis, Australia’s banks were worth more than all of Europe’s.

But Australian financial institutions have made the same fundamental mistake the rest of the country has, assuming that growth based on “houses and holes” — rising property prices and resources buried underground — can continue indefinitely. In fact, despite a recent rebound in Chinese demand, commodities priceslook set to remain weak for the foreseeable future. Banks’ exposure to the slowing natural resources sector has reached nearly $50 billion in loans outstanding — worryingly large relative to their capital resources.

Looks like the same story over and over again..

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