Australian banks have grown in size hugely in recent years. Astonishingly, Commonwealth Bank of Australia is the tenth largest bank in the world, despite Australia having a far smaller population than China, the US and the UK – the other countries who have banks in the top 10. All four of Australia’s main banks appear in the global top 20.
Australian banks are highly geared to a domestic housing bubble and have built up some of the highest loan-to-deposit ratios in Asia and the developed world. When, as we believe, the housing market begins to unravel, the banks are gravely exposed. Our equity leading indicator for Australian banks corroborates this, which forecasts the sector turning down over the next 6 months.