There has been media speculation recently about the impact of high-profile corporate collapses during 2001 on the position of Australian banks.

Chief Executive Officer of the Australian Prudential Regulation Authority (APRA), Graeme Thompson, said today, While some banks have suffered impaired assets and write-downs as a result of recent problems, these have not compromised the underlying strength of our banking system.

The banks aggregate exposure to large corporate failures during 2001, while looking sizeable in absolute terms, is very small in relation to their overall business. Moreover, it is our assessment that banks have generally taken a proactive, and often conservative, approach to recognising their doubtful debts.

The banking system clearly remains profitable and well capitalised.

APRA is keeping a close eye on the situation and will continue to discuss trends in impaired assets with all banks as part of our ongoing supervision.

On average, impaired assets measured against total lending assets were around 0.7 per cent at mid year. Even taking a worst case view of banks exposures to recent corporate failures, this ratio would reach only about 1 per cent. This compares with an average of around 1.8 per cent in the mid-1990s and a figure of about 6 per cent 10 years ago.

Moreover, any additional provisioning requirements for these exposures are well accommodated within banks current earnings. (Conservatively, these might amount to no more than around 5 per cent of underlying profit.) Provisioning and security cover is considered strong, and is unlikely to be significantly affected by any fallout from recent corporate failures.

The risk-weighted capital ratio for the banking system was over 10 percent at mid year, well above the regulatory minimum of 8 per cent.

For further information contact:

Gloria Peterson Public Affairs Manager 02 9210 3385 or 0419 250 286