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Asset Quality
The quality of bank lending - which includes housing, business and personal loans - is high. An important indicator of asset quality is the rate of non-performing loans (which are made up of impaired assets and past due items).
As at March 2010, the ratio of non-performing loans to total bank assets was 1.68%. This has shown a significant increase over the past two years as a result of the global financial crisis, mainly a result of increased arrears in business lending.
Source: RBA
The chart below shows that while there have been rises in the ratio of 90+ days non-performing loans across each of the three loan portfolios, arrears rates for business lending has seen the most significant increase over the past two years.
Arrears data from Standard and Poors - which is based on the performance of Residential Mortgage Backed Securities (RMBS) - shows that the 90+ days arrears rate on housing loans made by banks is much lower than for sub-prime housing loans.
As at May 2010, the 90+ days arrears rate on RMBS was 0.48% for banks and 6.26% for sub-prime loans. Note that banks do not make sub-prime loans.
A closer look at Standard and Poors 90+ days arrears on RMBS for banks shows a strong improvement over 2009, from 0.61% in February 2009 to 0.41% in December 2009. This has increased in early 2010 to 0.48% (May 2010).
Updated August 2010
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