Looking at the aggregate balance sheets of Australian Banks over the past 5 years highlights where growth has occurred, and highlights the challenges facing our economy. Since 2005, total bank assets have nearly doubled, suggesting that to be equally successful in the future, the pace of growth needs to be maintained. The compound growth has been 14% per annum.

Three lagging sectors have been Credit Card lending, Personal lending and loans to financial corporations. Loans to financial corporations peaked at $70 Billion in 2008, but has actually declined to $55 Billion in 2010. Credit Cards and Personal lending both have been dramatically beneath overall growth, with Personal lending also declining in absolute terms between 2008 and 2010.

For the economy to grow, lending must flow into Residential lending, Personal lending and Commercial lending. Between 2009 and 2010, total lending has actually stalled, with May 2009 assets totalling $2,618 Billion and May 2010 barely higher at $2,626 Billion.

The bottom line, total equity, reflective of the equity value being carried by the banks, has grown 15.1% compound over 5 years, but the last 12 months the growth has only been about 6%. The breakdown over the last 6 months shows that bank equity has declined from its peak in December 2009. Bank equity rose from $166 Billion in May 2009, peaking at $191 Billion in December 2009, but has since declined to the current $176 Billion. This of course reflects the decline in the share prices of the banks.

Bank Balance sheets are published monthly, and we will continue to monitor trends.

Michael Cornips