AUSTRALIA’S banks are likely to face a raft of problems in the next three years, as the global economy continues to tighten and the Federal Reserve begins to tighten its belt.

Here’s what you need to know.

1.

The banking crisis has taken hold in Australia’s largest cities The banks have been hit by an extraordinary surge in loan default rates in recent years, with the number of defaults rising to an all-time high of 12.3 per cent.

These are higher than the 10.7 per cent default rate in 2008 and are at levels not seen since the financial crisis of 2007-08.

A year ago, the Australian Financial Services Association said that the average bank had only about $30,000 in assets.

“It’s very difficult to see how this can be sustained in the short term, given the global economic environment and the financial system is already very weak,” said Alan Loughan, the chief economist at the ANZ Bank.

“In the longer term, we could see some of these issues getting worse.”

Mr Loughang said the average annual loss to the banking system from defaults was $50 million per year.

“The risk is that as the banks get smaller, the risk to the Australian economy goes up even further,” he said.

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