TEXT-Fitch: indirect impact on Australian banks from mining slowdown

Wed Nov 7, 2012 4:04pm EST

Nov 7 - Link to Fitch Ratings' Report: Australian Bank Mining ExposureNov 7 - Fitch Ratings says in a new report that Australian banks' direct
exposure to the mining sector is limited at less than 1% of total lending,
despite mining being a major contributor to the domestic economy. However, a
significant slowdown in mining would still affect banks indirectly through its
impact on the broader economy.

"A major slowdown in the mining sector would have negative implications for the
broader economy, most likely leading to higher unemployment and ultimately
weaker asset quality and increased provisioning for Australian banks," said Tim
Roche, Director in Fitch's Financial Institutions group.

The states of Western Australia and Queensland are the most exposed to the
mining sector and are likely to bear the brunt of any mining driven downturn.
Western Australia, in particular, exhibits some bubble characteristics, with
mining accounting for over a quarter of the state's economy and property prices
increasing significantly since 2004.

It is important to note that a sharp slowdown is not Fitch's base case - the
agency expects the Australian economy to grow at 3.3% in 2012, 3% in 2013 and
3.2% in 2014 - but rather represents a potential risk for the banking system.

Fitch recognises that there are a number of buffers that exist under such a
scenario. Both fiscal and monetary policy could be eased substantially, while
the Australian dollar would likely depreciate significantly from its current
high level, providing some stimulus to export oriented and import competing
industries.

The banks themselves have built sizeable buffers over the past four years,
leaving them better placed to deal with a slowdown in the Australian economy.
Nevertheless, the banking system retains a reliance on wholesale funding,
particularly from offshore sources, which may leave it vulnerable to weaker
global investor sentiment toward Australia. While such reliance is declining,
Fitch expects it to remain prevalent given structural issues in Australia.

'Australian Bank Mining Exposure - Direct Exposure Minimal, Risks Stem from
Broader Economy', is available at 'www.fitchratings.com' or by clicking on the
above link.

Additional information is available on www.fitchratings.com.
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