Difficult times ahead

AUSTRALIA will encounter an increasingly difficult time over the coming months as the economy battles against the backwash of the global financial crisis, the head of the Commonwealth Bank said yesterday.But Ralph Norris stopped short of agreeing with Gail Kelly, his counterpart at Westpac, that the country would fall into recession this year as a consequence of the worldwide drop-off in economic growth.Speaking a day after Mrs Kelly said a local recession was now unavoidable, Mr Norris, who heads the country's second largest bank by market capitalisation, said his organisation, remained cautious about the short- to medium-term outlook for growth.With more than 70 per cent of the developed world now in recession, the Commonwealth Bank chief executive told a Credit Suisse-organised investment conference in Hong Kong that the current state of play represented the "worst economic performance in our lifetimes".World growth was now forecast to go backwards this year and this would have a direct impact on the Australian economy, which was already slowing and experiencing rising unemployment, Mr Norris said. The effects would be felt across a broad range of the bank's customers, which made the domestic outlook "increasingly difficult".However, he joined both Mrs Kelly and ANZ Bank's chief executive, Mike Smith, who spoke at the same conference this week, in praising the strong policy responses by the Government and the Reserve Bank in helping to offset the worst of the global downturn.
The Federal Government's twin stimulus packages totalling $52 billion and the deep cuts in interest rates by the Reserve Bank would help to "soften the impact" of the slowing economy.
Mr Norris also highlighted the strength of the Australian banking sector which, unlike the shattered financial services industries in the US and Britain, was now among the strongest in the world. With four of the only 12 globally "AA" rated banks, the Commonwealth, Westpac, ANZ and National Australia Bank were also now listed among the world's top 20 safest such institutions, he said.Each was profitable, well capitalised and, just as importantly, continuing to lend, as witnessed by the finance flowing to the housing market. That was being helped by three main drivers: a chronic undersupply of homes, the boost provided by first-time home buyers, who have been bolstered by the Government's direct grants, and the 400 basis points cut in interest rates.As for the state of consumer credit - a key indicator of both the economy's immediate health and the quality of the bank's lending book - Mr Norris said its housing and personal loan portfolios remained sound.While conceding that there had been a small rise in the arrears rate of those home-owners who were 30 days or more behind in their repayments, this, he argued, was off an historically low base.As to a recent jump in credit card arrears, that could be put down to a one-off change in the minimum monthly amount that borrowers now needed to meet