Australian Banks Curb Lending

123jump.com Staff
25 Sep, 2008
New York City

Stocks in Australia fell after commodities and metal prices declined. Australian banks have less than 1% exposure to the sub-prime loans issued in the country, according to the latest report from the RBA. Australian dollar gained. China based Shagan acquired 45% stake in Australian iron ore company.

[R]3:00AM New York, 7:00PM Sydney – Stocks in Australia declined as commodities prices fall. Grange Resources to merge with ABM[/R]

Stocks in Australia declined weighed by commodity stocks after metal prices slumped.

Market Sentiment

In Sydney trading ASX 200 slid 1.09% or 54.5 to 4,927.40.

Of the 200 ASX 200 stocks 99 rose, 92 declined, and 9 were unchanged. Babcock & Brown led advancers in the index shares with a rise of 39.41% followed by Minara Resources increasing 32.60%.

Australian Banks Soundly Capitalized

The Reserve Bank of Australia reported in the half-yearly Financial Stability Review on its Web site today that Australian banks have little exposure to the troubled sub-prime related assets and are soundly capitalized.

Statistics from the review show that Australia's non-conforming housing loans, which are synonymous to U.S. sub-prime loans, represent less than 1% of the outstanding housing loans. Specialist non-bank lenders make almost all of the loans.

According to the report, all large Australian banks have high credit ratings, while credit standards have not been relaxed compared to the lax regulation in the U.S. But the turmoil on the credit markets has led to a decline in banking shares and most banks are now cautious about lending.

Recently some financial institutions have also made considerable provisions due to their ""exposures to a relatively small number of highly geared firms"".

Consequently demand for credit and consumption growth has eased as financial conditions have gradually tightened.

""While the Australian financial system has not been completely insulated from developments abroad, it is weathering the current difficulties much better than many other financial systems,"" read part of the report.

As part of measures to stem a possible crisis in the financial system if the need arises, the RBA, the Federal Treasury and banking and company watchdogs have already designed counter measures.

Australian Dollar Rises

The Australian dollar gained 0.1% to 83.91 cents against the dollar after the U.S. House Financial Services Committee Chairman Barney Frank said that Congress was close to hammering out the $700 billion deal to bail out troubled financial institutions.

Gainers & Losers

Babcock & Brown led advancers in the ASX 200 index shares with a rise of 39.41% followed by increases in Minara Resources of 32.60%, in Babcock & Brown of 28%, in Centro Retail Group of 16.67%, and Lynas Corp. of 12%.

Minara Resources and other resources companies increased on expectations that they will benefit from the slump of the Australian dollar that has plummeted 13% this half to US$0.84.

Timbercorp. Ltd led decliners in the ASX 200 index shares with a fall of 12.82% followed by losses in Paperlinx Ltd. of 10.99%, in Great Southern Ltd. of 10.59%, in Sigma Pharmaceutical of 5.93%, and Axa Asia Pacific of 5.88%.

Commodity stocks declined after copper slipped 1.4% to $3.1065 a pound. Oil prices also slipped 0.8% to $105.73 a barrel. Centennial Coal lost 5.34%, Paladin Energy shed 5.19%, Sino Gold declined 4%. BHP Billiton plunged 3.88%, and Fortescue Metals dipped 3.87% as a result.

Grange to Merge with ABM

Grange Resources Ltd., an iron ore mining company reported on its Web site today that the company will merge with ABM through acquiring 100% of the holdings companies from Shagang International Holdings Limited, GL Holdings Co. Ltd, Pacific International Co., and Stemcor Pellets Ltd by issuing approximately 380 million Grange shares.

Shagang is a unit of the largest private steel producer and third largest steel producer in China of Jiangsu Shagang Group Co. Ltd.

The merged entity is estimated to be valued at A$1 billion.