Credit crunch will affect Australia

The global credit squeeze will have a lasting impact on Australia’s financial market, with traditional banks set to benefit, the central bank says. The recent rise in funding costs as a result of volatile market conditions would likely have some impact on the nature of competition between traditional and non-bank lenders, the Reserve Bank of Australia (RBA) said in its half yearly financial stability review on Monday.

It has since eased to about 31 basis points as the market stabilises. Despite changes in global credit markets, the impact on the Australian financial system had not been as pronounced as in some other countries, the RBA said. “This reflects a number of factors, including the very limited exposure of Australian banks to the US sub-prime market and the very small size of the Australian non-conforming loan market (the closest equivalent to the US sub-prime market),” the RBA said.

“In addition, arrears rates on Australian mortgages remain low by international standards. “Overall, the Australian banking system remains highly profitable and is well capitalised.” Ms Ong said the financial stability review highlighted the strength of the Australian economy and the general good shape of both household and business balance sheets. She said the RBA will likely keep interest rates at 6.50 per cent in the coming months, with credit repricing working to slow robust global growth.

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