Australian Major Banks in Strong Capital Positions, Well Placed for Higher Consumer Credit Stress

Australian wide-moat major banks are comfortably meeting regulatory capital requirements, sitting on an aggregate excess capital of nearly AUD 15 billion as of Sept. 30, 2022. COVID-19 induced conservatism saw major banks cut dividends, tighten lending standards, divest assets, and in the case of Westpac and National Australia Bank, raise equity. Because of this, the majors are entering a downturn both well-capitalised and having enjoyed historically low loan losses given the accommodative monetary policy and fiscal stimulus in response to the pandemic. As at Sept. 30, 2022 on average, the four major banks had impaired and past due loans as a proportion of total loans of 46 basis points compared with 64 basis points as at Sept. 30, 2019.