IMF warns Australian banks face bad loans risk, Dollar at US91c: Economy Roundup

The International Monetary Fund has warned Australian banks could be at risk of losing over $33 billion due to bad loans, as both corporate and individual customers may struggle to repay debt.

Analysts Elod Takats and Patrizia Turnbarello said in a working paper that while Australian banks entered the financial crisis in a strong position, they still remain at risk from short-term wholesale funding.

“On the assets side, banks are vulnerable to the household sector as well as to possible corporate sector distress,” the analysts wrote. The paper stated that past due loans plus impaired assets rose to 1% of total assets as of March, but gross impaired assets for smaller lenders have deteriorated faster to about 3%.

“Australian banks’ potential losses from their corporate exposures could amount to as much as 2% of total banking sector loans.”

“Analysis of banks’ exposure to the corporate and household sectors shows that banks are able to withstand potential losses from sizable shocks to their loan portfolio.”

Meanwhile, BHP Billiton has made an offer to buy all the issued shares of the United Minerals Corporation for $204 million, with the deal conditional on UMC dropping an offer from China Railway Materials Commercial Corp Group.

“By any measurement this is a great result and it offers all of our shareholders an opportunity to deal away the significant development risks which we would need to overcome to bring the deposit into production,” UMC chairman Alan Birchmore said in a statement.

Shares open flat despite Wall Street lead

The Australian sharemarket has opened flat today despite good results from the US where a number of positive corporate results have boosted the market.

The benchmark S&P/ASX200 index was up 7 points or 0.14% to 4866.9 at 12.00 AEST. The Australian dollar has slipped from its 14-month high to US91c after reaching US92c yesterday.

Commonwealth Bank shares lost 0.2% to $55.43, while ANZ gained 0.1% to $24.94. Westpac rose 0.4% to $27.22 while Woolworths gained 1.2% to $30.11.

Rio Tinto has announced changes to its senior management team, with three people added to the executive committee, the company said in a statement.

The company announced that iron ore chief Sam Walsh will now head up the company’s corporate office, while Doug Ritchie has now been appointed as the chief executive of Rio Tinto Energy. Andrew Harding will become London-based chief of the copper division, while Harry Kenyon-Slaney will become chief of diamonds and minerals.

Finance minister Lindsay Tanner has said tax reform will not be delayed, following comments from treasury secretary Ken Henry that minimal surpluses due to the financial crisis could limit reform.

“I don’t think tax reform will be delayed,” he told ABC’s Lateline. “There is no question that prior to the election we will have to give people an answer as to how we will proceed with these areas,” Tanner said.

In the US, treasury secretary Timothy Geithner has said despite signs of economic optimism any recovery is likely to be slow.

“Realistically, it’s going to be a slower-than-typical recovery,” Geithner said at Pace University in New York. “The classic pattern is that governments break too soon and too early… that is a costly mistake”.

Citigroup posts $US8 billion loss

Also in New York, Citigroup recorded a $US8 billion loss, prompting investors to question whether the company can return to a profitable state. While the loss was lower than expected, many analysts expressed worry about the company.

“On first blush, this is not particularly optimistic,” Tim Ghriskey, chief investment officer of Solaris Asset Management told Reuters. “They did beat on earnings and revenue, but the $US8 billion credit losses… is a reminder that we are in a weak economic environment.”

On Wall Street, stocks rose as rising oil prices boosted energy shares, while a number of companies including Google and IBM recorded positive results. The Dow Jones Industrial Average rose 47.08 points, or 0.47%, to 10,062.94.