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Credit Losses at Australian Banks: 1980–2013

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  • David Rodgers

    (Reserve Bank of Australia)

Abstract

Credit risk – the risk that borrowers will not repay their loans – is one of the main risks that financial intermediaries face, and has been the underlying driver of most systemic banking crises in advanced economies over recent decades. This paper explores the ex post credit risk experience – the 'credit loss' experience – of the Australian banking system. It does so using a newly compiled dataset covering bank-level credit losses over 1980 to 2013. The Australian credit loss experience is dominated by two episodes: the very large losses around the early 1990s recession and the losses during and after the global financial crisis. The available data indicate the above-average losses during both periods were on lending to businesses. Credit losses on housing loans during and after the global financial crisis were minimal in Australia. Consistent with this, an econometric panel-data model that properly accounts for portfolio composition indicates that conditions in the business sector, rather than those in the household sector, drove credit losses in Australia during the period studied. The data also indicate that the very worst credit loss outcomes – including those that led to the failure of several state government-owned banks in the early 1990s – were driven by poor lending standards.

Suggested Citation

  • David Rodgers, 2015. "Credit Losses at Australian Banks: 1980–2013," RBA Research Discussion Papers rdp2015-06, Reserve Bank of Australia.
  • Handle: RePEc:rba:rbardp:rdp2015-06
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    File URL: https://www.rba.gov.au/publications/rdp/2015/pdf/rdp2015-06.pdf
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    References listed on IDEAS

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    Cited by:

    1. Christina Bui, 2018. "Bank Regulation and Financial Stability," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 5-2018, April.
    2. Rose Kenney & Gianni La Cava & David Rodgers, 2016. "Why Do Companies Fail?," RBA Research Discussion Papers rdp2016-09, Reserve Bank of Australia.
    3. Bui, Christina & Scheule, Harald & Wu, Eliza, 2017. "The value of bank capital buffers in maintaining financial system resilience," Journal of Financial Stability, Elsevier, vol. 33(C), pages 23-40.

    More about this item

    Keywords

    banking; credit losses; lending standards;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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