Australian consumers continue to save aggressively and pay down their debts.
Earlier this year we were saving in expectation of rising interest rates, but now that threat has disappeared, Australians have other concerns. Now there is fear of a slowdown in the global economy looms.
New figures show deposits on the books of Australian banks keep rising dramatically, relative to loans, as consumers address their new-found craving to save, the Herald Sun reported.
In the year to October, deposits climbed 10 per cent while total credit growth clocked in at only 3.5 per cent.
The ratio of loans to deposits in the Australian banking sector now stands at 149 per cent – indicating that the banks have $1.49 owed to them for every $1 of savings on their books.
From the late 1980s, when the ratio was at parity, it soared over two decades to peak at 183 per cent in March 2008.
UBS analyst Jonathan Mott said in a note to investors this week that the ratio could fall closer to parity if households continued their frugality.
“We estimate if banks can maintain 10 per cent deposit growth and 5 per cent credit growth, then the banks’ loan-to-deposit ratios should be back to parity by the end of the decade,” Mr Mott said.
Australian banks are regarded among the strongest in the world. But the lack historically of a strong savings culture in Australia means the banks have had to secure much of their funding in offshore wholesale markets.
Mr Mott warned that while it was positive that loan-to-deposit ratios were falling,” as seen overseas, achieving orderly deleveraging is not an easy task”.
He said there was a significant “risk” that the turmoil unfolding in Europe could still impact on local banks.
“The banks have reverted to low growth, but (they are) profitable companies producing strong dividends,” he said.
“While current (share price) valuations are more appealing, near-term performance is likely to be driven by Euro geo-political events with significant downside risk.”
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