Australia’s banks have more-than quadrupled their exposure to Asia in the past five years as they seek to cash in on the resource-rich nation’s growing trade ties with the region, the country’s central bank said.
The so-called big four commercial banks Australia & New Zealand Banking Group Ltd. ANZ.AU -1.00% Commonwealth Bank of Australia Ltd. CBA.AU -1.54% Westpac Banking Corp. WBC.AU -1.75% and National Australia Bank Ltd. NAB.AU -1.39%, have looked to Asia to boost their profits amid slowing demand for credit at home. The move has been accelerated by the withdrawal of many European lenders from the region as the euro-zone debt crisis deepened.
Australian banks’ exposure to Asia–mainly in areas such as trade finance and foreign exchange–rose to 112 billion Australian dollars (US$117 billion) at the end of last year, up from A$27 billion in 2007, the Reserve Bank of Australia said in its twice-yearly report on financial stability Wednesday.
That hasn’t substantially increased their risk profile, the central bank said, although credit risk remains an “an area to watch.” Australia has some of the most highly rated commercial banks in the world, in part due to its strong bank regulations and the relative strength of the Australian economy, which largely sidestepped the global financial crisis because of Asian demand for commodities like iron ore and coal, used for steelmaking.
The retreat of European banks from the Asian-Pacific region has also led Asian lenders to finance more Australian projects, the central bank report said. Asian banks now account for nearly a quarter of the syndicated loan market, where several banks work together to provide financing for big developments like mines, up from 13% in 2007.
“The increased linkages between the Australian and Asian banking systems can partly be seen as a natural consequence of greater regional economic integration,” the RBA said. “Activity in Asia is likely to continue to expand over the longer term as trade and investment between Australia and Asia grow, and banks look to capitalize on growth opportunities in Asian banking systems.”
Australia & New Zealand Banking Group Ltd. has led the expansion of Australia’s lenders into Asia in recent years, with Chief Executive Mike Smith aiming to generate 25% to 30% of the group’s revenue from Asia, Europe and the U.S. by 2017.
Others are starting to follow. Spiro Pappas, Asia chief executive of National Australia Bank Ltd, the smallest of the big four commercial banks, told The Wall Street Journal in a recent interview the lender plans to use its business banking connections, particularly in niche industries like agriculture and resources, to expand its business in Asia.