Fitch Says Australian Banks Pass Stress Tests

Chandrasekhar Atreya
13 Oct, 2010
New York City

Stocks in Australia stayed little changed after fluctuating several times. Consumer confidence rises in October. Resource stocks are expected to rise as iron ore prices increase ahead of rebuilding of stocks in China. Australian banks have sufficient capital to withstand 40% decline in home prices.

[R]6:00 PM Sydney, Australia – Stocks in Australia stayed little changed after fluctuating several times. Consumer confidence rises in October. Resource stocks are expected to rise as iron ore prices increase ahead of rebuilding of stocks in China. Australian banks have sufficient capital to withstand 40% decline in home prices.[/R]

Stocks in Sydney traded higher after the U.S. Fed indicated its willingness to buy more government bonds and stimulate the economy. In volatile trading the benchmark index fluctuated several times above the yesterday’s close.

The ASX 200 Index gained 0.04% or 1.70 to close at 4,619.90. Resource stocks were in demand ahead of China restocking its iron ore stockpiles and the expected rise in iron ore prices.

The Australian dollar closed at 98.96 U.S. cents and gained against the yen and declined to the euro and the UK pound.

Australian banks have enough capital to withstand sharp and sudden decline in home prices. According to the preliminary test results released by the rating agency Fitch Ratings, 40% decline in home prices and mortgage default rate of 8% is “manageable.”

The banks in the extreme case are likely to lose A$10 billion and mortgage insurers will lose A$7 billion in the third year of the price decline.

Local banks and regulatory agency has consistently said that home prices are not in bubble and stringent lending standards have kept the prices in check.

Total personal finance commitments fell 0.3% in August, seasonally adjusted to A$7.392 billion, down from A$7.410 billion in July, the Australian Bureau of Statistics said Wednesday.

Total commercial finance fell 11.1% in August, seasonally adjusted, to A$26.769 billion, down from A$30.125 billion in July. However, leasing finance was up 2.3% in August to A$397 million, compared with $388 million in July.

Consumer confidence rose in October after the Reserve Bank of Australia’s surprise decision not to lift its benchmark interest rate earlier in October, according to a survey.

The Westpac-Melbourne Institute Index of Consumer Sentiment rose 3.3% to 117.1 in October, well above the 100 level that separates pessimists from optimists. That compares to 113.2 in September and puts the index 2.5% above its 2010 average and 15% above its low point that was seen in the period March to May this year.

Miners in Chile emerged from underground after 69 days. Florencio Avalos was the first miner to emerge from the shaft in Chile, after spending 10 weeks trapped below ground.

Resource News

Minara Resources, the country’s second largest nickel producer said September quarter output was down after equipment failed at its Murrin Murrin nickel and cobalt processing plant.

Copper Strike said Wednesday Kagara’s A$14.2 million takeover offer appeared to be highly opportunistic and advised its shareholders to take no action in relation to the offer.

“The preliminary view of the directors is that the quantum and timing of the offer is highly opportunistic,” Copper Strike said in a statement on Wednesday.

Thailand’s Banpu Minerals will now move to compulsorily acquire shares in Centennial Coal Ltd that it does not already own, after it acquired 90% ownership.

Centennial said Wednesday that Banpu had closed its $2.4 billion takeover bid with a 98.51% stake in the company, which had recommended the proposal to its shareholders.

Gainers & Losers

Kagara Ltd led gainers in the ASX 200 index with a gain of 8.7% to A$0.75 followed by Fortescue Metals Group Ltd 5% to A$6.3, Perseus Mining Ltd 4.98% to A$2.95, Equinox Minerals Ltd 4.22% to A$6.17 and Paladin Energy Ltd 4.12% to A$3.79.

Platinum Australia Ltd led decliners in the index with a drop 15.75% to A$0.535 followed by Energy Resources of Australia Ltd 6.43% to A$13.53, Isoft Group Ltd 4.35% to A$0.11, Billabong International Ltd 2.53% to A$7.71 and Beach Energy Ltd 2.26% to A$0.65.