Oz: under attack or unscathed?

The US credit crisis has had a surprising impact on Australia, reveals the RBA…

According to the Reserve Bank of Australia (RBA), Australia has been able to withstand the US sub-prime mortgage fallout because it has had little exposure to faulty American loans.

RBA Assistant Governor of financial markets, Guy Debelle, commented: “The domestic banking system had only very small holdings of collateralised debt obligations (CDOs), where US sub-prime debt is on-sold to investors.

"The Australian financial system has seen some fallout from the problems in the US, but there has has been very little in the form of direct exposure."

Rate rises

The major banks have raised their variable home loan rates this year, even when the RBA did not put up official interest rates, because of increased global money market borrowing costs.

Mr Debelle added: "As risk has been repriced, the cost of borrowing has risen in intermediated markets so that Australian financial institutions, in line with all global institutions, have found it more costly to raise funds to finance their lending.

"However, Australian banks have generally not found their access to capital markets, both domestic and offshore, noticeably curtailed. While they have had to pay more for the funding, they have been able to raise the funding necessary to fund their targeted rate of balance sheet expansion."