RBA Warns Commercial Loan Losses

Darlington Musarurwa
25 Mar, 2010
New York City

Reserve Bank of Australia noted the commercial real estate loan losses are a significant concerns but bank profits are expected to be on the rise. The RBA official also noted separately that inflation is likely to decline in the coming months. Woodside Petroleum denies Santos merger talks.

[R]6:00 PM Sydney- Reserve Bank of Australia noted the commercial real estate loan losses are a significant concerns but bank profits are expected to be on the rise. The central bank official also noted in a separate statement that inflation is likely to decline in the coming months. Woodside Petroleum denies Santos acquisition talks.[/R]

Australian benchmark index fell 0.1% after investors focused on European leaders talks to provide financial assistance to Greece.

Fitch Ratings downgraded Portugal’s sovereign debt risk by one notch to AA- with negative outlook and warned that additional downgrades are likely.

Markit also reported today that spreads on the country’s five year credit default swaps, which gauges credit risk, rose to 1.39 percentage points from 1.34 percentage points.

In Sydney trading ASX 200 Index declined 0.1% or 6.1 to 4,885.40.

Of the ASX 200 index stocks, 50 rose, 132 fell, and 18 were unchanged. Energy World Corp. led gainers in the index shares with a rise of 56.5% followed by Iluka Resources climbing 3.1%.

Other commodity stocks also increased. Murchison Metals jumped 1.9% to A$2.65 and Rio Tinto edged up 1.8% to A$78.62.

The Australian advanced 0.3% to 91.01 U.S. cents.

Bank Profits May Have Bottomed, Commercial Loans Worries

The Reserve Bank of Australia reported today in its Financial Sector Review that the bank profits are beginning to grow as loan losses may have bottomed out.

In September, the RBA cautioned that provisions and bank’s loan losses may be on the rise. Since then, residential mortgage bonds market has been has been on the rise. The report notes that businesses are no longer deleveraging as credit supply conditions become less restrictive and business credit stabilizes.

However, valuations in the commercial property sector continue to decline sharply.

“There has been a more significant deterioration in the quality of banks'' business loan portfolios, particularly for commercial property, and this remains an area to watch closely in the period ahead,” said the RBA.

Interest Rates to Rise, Lowe

Reserve Bank of Australia Assistant Governor (Economic) Phillip Lowe said today that interest rates are expected to rise to more normal levels as the central bank takes pre-emptive moves to contain inflation.

He however warned that the rising home prices may develop into bubble. The Australian home prices have been rising 1% per month.

According to Lowe, there still remains downside risk to global economic growth posed by higher interest rates in Asia that could put upward pressure to asset prices and currencies.

The RBA expects inflation to slow around 2.5% this year from 3.2% last quarter.

Woodside Dismisses Santos Takeover Bid

AAP reported that Woodside Petroleum chief executive officer Don Voelte today denied speculation that the company intends to acquire Santos.

Santos also confirmed to the Australian Stock Exchange that it has not been approached by Woodside.

The stock market regulator has sought clarification after Santos shares rose to A$15.05 today from A$14.37 yesterday.

“The company’s share price may have been affected by the announcement yesterday by the BG Group of a significant LNG sales contract being executed with the China National Offshore Oil Corporation,” Santos explained to the ASX.

ASX Movers

Macmahon Holdings Limited led decliners in the S&P ASX 200 index with a loss of 5.3% followed by losses in Perseus Mining Limited of 4.6%, in Platinum Asset Management Limited of 4.1%, in Roc Oil Company Limited 4.0% and in Alumina Limited 4.0%.

Energy World Corporation Limited led gainers in the S&P ASX 200 index with a rise of 56.5% followed by gains in Iluka Resources Limited 3.0%, in Santos Ltd of 2.7% and in Straits Resources Limited of 2.5%.

Other Movers

St Barbara Limited the gold miner dropped 3.7% to A$0.25.

Energy World Corporation Limited surged 56.5% to A$0.54 after the natural gas explorer said Tokyo Gas Co Japan plans to buy 500,000 tons of liquefied natural gas per year from a project in Indonesia.

Newcrest Mining Limited the gold producer decreased 1.5% to A$32.82.

Santos Ltd rose 2.7% to A$14.76 after the company, Woodside Petroleum Limited dismissed speculation it was considering a A$15 billion or $13.67 billion bid for Santos Limited.