Reading Comprehension: Exercise-2

Overview:

Directions (1-10): Read the following passage carefully and answer the questions. Certain words/phrases are given in bold to help you locate them while answering some of the questions.

Banks in Australia have a certain upside-down quality to them. Their share prices broke free from the put that dragged down their international rivals during the 2008 financial crisis. In recent years, they have soared as others have sagged. now that big banks in other rich countries are regaining their pose, as in most of the global economy, it is the turn of Australia's to slide. This topsy-turvy behaviour may yet continue given its worsening outlook. Serving a buoyant domestic economy with none to fierce competition, Australia's big four lenders are commonwealth Banks, National Australia Bank (NAB), ANZ and Westpac, used to delight shareholders with bumper dividends. But concerns over their balance-sheets and exposure to Australia's housing market have caused their shares to dip. Investors fear that the exceptional circumstances underpinning the vibrant returns of recent years are coming to an end. The commodity "super-cycle" that boosted both Australia and its banks has fizzled. Unemployment is creeping up. The biggest concern is the health of bank's mortgage books. Home loans have been fabulously lucrative for Australian banks but this is changing. According to analysts, return on the top 50%, which would make an even precrisis wall. Street bankers happy. No wonder, then that domestic home loans now represent 40% to 60% of Australian banks assets, up from 15% to 30% in the early 90s. Mortgages in New Zealand account for another 5-10%. A growing number of loans are going to property speculators or to a homeowner paying back only the interest on their loan. Recent stress test suggested that a property downturn would ravage banks. Regulators trot about the lack of diversification in banks, especially given their dependence on foreign money for funding. They want banks to curb growth in the riskiest mortgages and to finance them with more equity and less debt. A government inquiry into the Australian financial system called for banks to be better capitalised. Collectively, Australian banks may need as much as a $40 billion in fresh capital to meet regulatory demands. The big four are still highly profitable and their returns will remain better than most despite all the new equity they will have to raise. After all, banks around the world are being forced to fund themselves with more equity. Aussie-borrowers are less likely to default on mortgages than American ones, as lenders have a claim on all their assets. not just the property in question. but there are other concerns as well. Credit growth in Australia is slowing. Expansion into crowded Asian market seems difficult which leaves little scope for diversification. If they can not make banks less dependent on mortgages, regulators will have to find other ways to make them safer.