Yesterday the Reserve Bank released its Financial Stability Review and there was more bad news for all of the Aussie Bank haters and shorters off shore.
While the Reserve Bank did again warn on lending standards and the FSR did show that Australian banks have the highest price to book ratio – so effectively their prices are high by global standards – the FSR also showed why Australian Bank prices are healthy against their global peers.
Australian bank non-performing loans, both in total and housing loans specifically are amongst the lowest in the world.
Hedge FUnds from offshore have been selling Australian banks recently in the expectation that low interest rates and troubles in emerging markets will weigh on the sector.
But on the other side of the coin if you look at asset performance, then if this is how Australian banks perform when rates are low and return on assets at the low end of the cycle imagine how things will look when rates rise and the economy starts performing again.
So maybe on a risk adjusted basis Australian banks aren’t that obvious a short after all.
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