RBC report: Australia Bank debt outperforms on economic rebound

According to the report of RBC Capital Markets, Australian bank debt will outperform global peers because the lenders have shown resilience to the slowdown in the nation’s economy and will benefit as it rebounds. RBC analysts in London wrote in a report published today that Australian banks showed their principal strength in the substantial capital adequacy of each bank. While earnings will decline, bond spreads will “remain resilient relative to competitors,” they said. The four largest banks have enough credit strength to withstand the turmoil, RBC said, highlighting Commonwealth Bank of Australia and Westpac Banking Corp. because they’re the most “pure Australian” lenders. Retail sales in Australia advanced for a second month, new home sales gained for a fourth and manufacturing shrank at a slower pace, reports today showed. The economy is being bolstered by the lowest borrowing costs in half a century and record government spending. Performing better than other economies, Australia is likely to enter a “mild” recession, RBC said in the report. Australian corporate bonds have outperformed European credit and Australian stocks. There are also some risks to Australian banks including reliance on funding in foreign currencies and that a third of residential mortgages are for houses that aren’t occupied by their owners. That type of lending is more sensitive to the economy than straight loans to homebuyers, RBC said.