AS THE CURRENCY SINKS BANKS LEARN TO SWIM
Large Australian banks and corporates, caught napping when the Australian dollar plummeted in February last year, have prepared themselves for the dollar's latest drop from about 74 cents to about 61. They are finding the road to salvation in sharply-increased professionalism, specialized treasury operations, the Euro-Australian dollar bond market and domestic hedging products.
Some, however, are still floundering -- particularly the government authorities which find it easier to procrastinate rather than solve their long-term problems.
The Australian dollar's latest collapse has dispelled any lingering belief among Australian borrowers that low-coupon foreign currency-denominated loans add up to a bargain. And tha is even when compared with local interest rates, currently more than 14% for 10-year treasury bonds and 18% for bankers' acceptances.
Already, several large corporates have declared unrealised foreign exchange losses on their loan portfolios as high as A$500 million. Several banks are also being sued for allegedly not warning smaller borrowers of their foreign exchange loan risks.
However, most of these losses relate to the dollar's first collapse, when it fell from 85 US cents to about 68 cents.
"By the latest drop, most people had got themselves sorted out, they have at least structured themselves.