This paper explores the historical credit loss experience of the Australian bankingsystem. It does so using a newly compiled dataset covering the bank-level creditlosses of larger Australian banks over 1980 to 2013. Portfolio-level credit loss data data that break losses down by type of lending (e.g. business, housing andpersonal lending) – are available for a broad range of banks only from 2008onwards, so this paper mainly uses total loan portfolio data.This paper provides the first narrative account of banking system credit losses inAustralia that includes both the early 1990s and global financial crisis episodes.
Credit losses rise sharply during economic downturns, and are the main influenceon banking system profitability during such periods. The Australian credit lossexperience over the past three decades is dominated by two episodes: the verylarge losses around the early 1990s recession and the losses during and after theglobal financial crisis. During both episodes, banks’ credit losses appear to havehad a close relationship with changes in business sector conditions (such ascommercial property prices and the business sector’s interest burden). Lossesduring the earlier period totalled around 8½ per cent of lending; losses during andafter the global financial crisis were around 2½ per cent of lending.
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