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Loan defaults to rise: Fitch

14 January 2010 Reporter

Loan defaults are expected to rise over the coming year as interest rates return to more neutral levels and the government stimulus measures are progressively wound back.

According to Fitch Ratings semi-annual report on the major banks, impaired assets rose significantly during 2009, at a time of considerable fiscal stimulus and emergency low monetary policy settings.

Tim Roche, director in Fitch's Financial Institutions Group, said as the interest rate cycle turns, with three increases in the official cash rate towards the end of 2009, highly geared Australian households could come under pressure, affecting economic activity and asset quality.

But even with an elevation in the amount of gross impaired loans, Mr Roche said Australia’s loans remained relatively robust in comparison to its off-shore peers.

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Australian banks also have considerable capacity to withstand further loan impairments because they have generated higher operating profits and increased loan loss reserves, according to Fitch.

Loan defaults to rise: Fitch
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