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Major lenders in ‘best position’ to weather global banking crisis

A leading Australian fund manager says local lenders are well positioned but not immune to the banking crisis unfolding in the US and Europe.

Speaking at the Fidelity Investment Forum 2023 in Sydney on Tuesday (21 March), Paul Taylor, head of investments for Australia and portfolio manager for the Fidelity Australian Equities Fund, said that while Australia isn’t immune, it is in “one of the best positions in the world”.

The collapse of three US-based regional banks — Silicon Valley Bank, Silvergate Bank, and Signature Bank — has undermined confidence in the global banking system, impacting established institutions like Credit Suisse.

“The US is very fragmented with a lot of small regional banks. They have different tiering of regulation between larger and smaller, as well,” Mr Taylor explained.

“Australia is obviously a highly concentrated banking market. We’ve got a big four which dominate, we don’t really have a lot of small community banks … and they are highly regulated financial institutions.

“APRA and the Reserve Bank want almost double the capital requirements of the global standard, so the banks are in strong shape. They have incredibly strong capital.”

Comparing the health of the current global banking system to the 2008 global financial crisis, Mr Taylor pointed out that Australian banks maintained their strong performance throughout that downturn.

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“I wouldn’t say immune, you’re never immune, but they’re in about the best position that you could be if you look around the world,” he said.

Reflecting on macro-economic data, Mr Taylor assessed that inflation remained a continuous issue and flagged the possibility of further rate hikes. He noted that the RBA had taken a more measured approach than some other central banks, such as the US Federal Reserve that utilised multiple 75-bp increases last year.

“The RBA has been increasing interest rates steady but not super quick like some of the other markets,” Mr Taylor said. “We’ve got an interesting scenario as they try to get that inflation down, obviously interest rates going up, with an unusual scenario for Australia that we have about a third of the market when interest rates are very low with their mortgage on fixed rate. That’s unusual, Australia is normally a variable rate market.”

While he believes that Australia is unlikely to experience a recession, he suggested that that outcome should still be considered when assessing risk.

“At the moment, there are no expectations of a recession, but definitely expect a slowing,” Mr Taylor said.

“If interest rates do have to get taken up further because inflation is a continuous issue, I think it’s reasonable to install a risk of recession.”

Following the release of the minutes of the most recent RBA board meeting, speculation has strengthened that rates will be put on hold.

[Related: ‘Let’s be clear. This is an emergency rescue’: UBS]

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