Insights


Fallout from the US sub-prime market collapse which spread throughout Britain, France, Germany and Japan has now reached our shores.

Much of the credit offered by Australian financial institutions has traditionally been sourced offshore, so it is with interest that we look at the recent write-downs by international lenders, and consider the impact on our own economy.

During the last six months, international lenders who had carried assets at inflated values for many years have been forced to mark to market their balance sheets, resulting in significant portfolio write-downs.

The graph below illustrates the significance of write downs to date, showing current year write-downs in excess of US$337bn.  Of particular interest is the inclusion of blue chip banks, including Citigroup US$69bn, UBS US$45bn, Merrill Lynch US$38bn and Morgan Stanley US$23bn.

 

As a result, the volume of funds available to Australian financial institutions for on-lending to businesses has significantly decreased, and that which is available is becoming increasingly more expensive.  Analysts expect our current liquidity crisis to continue well into the new financial year.

Already showing signs of slow down following four successive interest rate increases by the RBA, the latest un-official interest rate increase is certain to have a further dampening effect on business and consumer sentiment.

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