Australian banks are ‘unquestionably strong,’ says RBA’s Kent

BLOOMBERG

Australian banks are “unquestionably strong” with solid capital and liquidity buffers, a senior Reserve Bank (RBA) official said, alleviating fears that stresses in the global financial system could hurt the nation’s big four lenders.
“Volatility in Australian financial markets has picked up but markets are still functioning and, most importantly,
Australian banks are unquestionably strong,” RBA Assistant Governor Chris Kent said in a speech in Sydney. “Even if markets remain strained for a time, Australian banks’ issuance will continue to benefit from the strength of their balance sheets.”
His remarks come as the Federal Reserve and five other central banks announced coordinated action to boost liquidity in their standing US dollar swap arrangements, and after UBS agreed to buy Credit Suisse in a government-brokered deal to contain a crisis of confidence.
“As for what all of this implies for interest rates, it’s just one of many things that the board will be taking into account when it makes its decision next month,” Kent said in response to a question after his speech.
RBA chief Philip Lowe has signalled a potential pause at the April 4 meeting to assess the economy. Policymakers have raised rates by 3.5 percentage points at the past 10 meetings from a record-low 0.1% in May. The global banking fears prompted traders to price the chance of an RBA rate cut in August at 88%.
Kent pointed out that the global banking sector is in a much stronger position than a decade ago, adding the recent issues have emanated from some “poorly managed institutions that did not meet those high standards that have been imposed on almost all banks.”
In addition, Australian banks’ capital and liquidity positions are well above regulatory requirements, they’re well managed and have strong balance sheets, he said.
Kent’s remarks are validated by movements in Australian banks’ credit default swaps that have risen an average 4 basis-points since February 20, compared with a 700-basis-point jump for Credit Suisse.
“Australian banks have no held-to-maturity securities and carry internationally comparable CET-1 ratios of over 16% and significant liquidity buffers, further bolstered by Reserve Bank repurchase facilities for loans,” Bloomberg Intelligence analysts Matt Ingram and Jack Baxter wrote in a research note.
The RBA will “continue to closely monitor” transmission of monetary policy and its impact on consumer spending, labour market and inflation, Kent said.