Australian Lenders Likely To Be Unaffected By European Sovereign Default Crisis

Post by Sharat on June 4, 2010 · Under Australian Economy, Business News, Capital Markets, banking · Comment 

The European sovereign default crisis is not expected to hurt the Australian financial system, since the major lenders have very little exposure to euro-zone debt or links to potentially troubled lenders on the continent.

John Laker, the Australian Prudential Regulation Authority chairman on Thursday said that while the crisis has begun to ricochet through global financial markets, the effect on Australia was likely to be minimal.

Addressing the Senate Economics Committee in Canberra, Dr. Laker said that the fragile economic recovery in Europe was threatened by the current crisis, but he did not believe that Australian banks were major participants in the region.

“Australian banks have a very small exposure to countries in the euro area. Global funding markets, to date at least, have been much more discerning about the fundamental strength of our banks.” Dr. Laker said.

The chairman added that domestic financial institutions were more reliant on Australian and regional economic growth, both of which were strong.

“These developments augur well for Australia’s financial institutions. Over recent weeks, however, this positive global growth story has been obscured by the financial ash cloud over Europe.”

The major Australian banks have already funded their requirement for 2010, and are therefore largely immune to the large credit spreads that are currently being caused by the European sovereign default crisis.

APRA is also monitoring global and domestic equity market volatility on the life insurance and superannuation industries.

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