important when you are looking at strategically positioning the business to future products, market and sector that will add value to the bank. Half of the Australian banking industry loan portfolio is exposed to properties. This is a sector that is sensitive to unemployment rate and interest rate. Seventeen per cent is exposed to housing investment that is sensitive to changes in asset price. Owner occupied property is a buy on hold and in the event of an asset price bubble as long as unemployment rate remain low, loan defaults is less likely to occur. Loans that generate tangible economic growth to Australia are only 21% of the banking industrys loan portfolio. Tangible growth is meant in the context of job creation, production of consumable goods and services, and development of infrastructure. It is a portfolio structure that does not encourage growth in deposit from other sectors that can potentially generate new deposits from domestic and foreign trade. It is worth checking the Australian house hold income too if it is tightly tied to property and high living cost with no income left for savings. Should the property price need to go down further and should it be regulated going forward? Global markets risk management products only accounted to less than 10% of the banking industrys total exposure. The graph on the middle left side show a decrease in deposits not just for the big four banks but across the banking industry. Deposits to the big four bank is shrinking not because of the new entrant and increased competition in the banking industry but because of lack of support to Financial Institution (ADIs) Credit Review: Risk concentration in the Australian Banking Industry By Ferlyn Genato 06 May 2012 corporation and economic activities that generates additional revenue and new cash injection to the Australian economy. Although the government of Australia made a massive effort to support the other sector through its fiscal policy (e.g. automobile, agricultural, and shipping industry), new initiatives from the banking sector is required in order to generate new deposits by way of diversifying its exposure. It takes two to tango. The banking industry business model in the last five years is tuned to regional and global diversification however new deposits remained as a challenge. Addressing exposure diversification to asset types and domestic clients is perhaps a solution that could have been taken first before jumping into regional or global diversification or at least simultaneously considered. This observation is also the same to banking industry in other region. In dollar term the big 4 banks still have the large share of the deposit. Westpac Bank and ING Bank Australia Limited are better placed to grant new loans because of a better loan to deposit ratio compared to its peers. The graph on the middle left side is the rate of change in loan to deposit. Funding requirement is expected to be a challenge this year for both ANZ Bank and National Bank, while Westpac Bank and Commonwealth Bank may not need short term borrowings this year. The statistical data however can potentially change after the impact of Basel III is incorporated to the equity of the banks, and after the margin requirement from the Dodd Frank rule is also incorporated. The 4 big banks operate in the US and are counterparties to US legal entities. Data source: APRA and Bloomberg Disclosure: This article is intended for industry discussion and it is not intended for advice.