According to the latest RBA bulletin impaired assets at Australian banks continue to rise sharply. The total value of impaired assets rose a record 6.7$ billion (blue line) in the December 2008 quarter.
However the more important measure of impaired assets is the percentage of total assets that are impaired, represented by the green line above.
That has risen to 0.74% the highest since the March quarter of 1997. By historical standards that is not troubling. The last credit cycle in the early part of this decade topped out at a ratio of 0.69% in March 2002 and banks sailed through that period with sound balance sheets and more than adequate provisioning.
There is no doubt that this cycle is going to be more severe, still it would have to push significantly through the 1.0% mark to be classed as troubling. As I said back in December I think it is only a matter of time before we see the percentage of impaired assets push through that level as unemployment ratchets up and business conditions deteriorate. We know unemployment is only just getting started and according to the NAB business survey out today business conditions continue to slide.
The earliest measure the RBA has for impaired assets is Sep 1994. At that time impaired assets as a percentage of total assets were 2.54%. We are a long way from that number but it is probably in the ballpark of where we are headed in the next 18 months.
