Australia is handling the US sub-prime crisis better than other nations even if banks are raising their variable lending rates beyond rises in the cash rate, a central bank official said today.

Reserve Bank of Australia (RBA) assistant governor of financial markets, Guy Debelle, said the global credit crunch had not stopped the major banks accessing funds.

The big four banks all raised their home mortgage rates in April, even though the RBA kept the cash rate on hold.

“As risk has been repriced, the cost of borrowing has risen in intermediated markets so that Australian financial institutions, in line with all global institutions, have found it more costly to raise funds to finance their lending,” Dr Debelle told a mortgage conference in Adelaide today.

“However, Australian banks have generally not found their access to capital markets, both domestic and offshore, noticeably curtailed.”

The global credit crunch has worsened since 2007 as risky borrowers have been unable to pay off high-interest US sub-prime mortgages, which are on-sold to investors.

Dr Debelle said the Australian banking sector had only a small holding of these troubled collateralised debt obligations.

“The Australian financial system has seen some fallout from the problems in the US,” he said.

“There has been very little in the form of direct exposure.”

Dr Debelle said the strength of the Australian banking system and the domestic economy had helped the financial system withstand the sub-prime turmoil.

“The strength of the Australian banking system relative to those in a number of other countries, particularly the US, and the strength of the domestic economy more generally, has meant the impact of the global turmoil has been relatively muted,” he said.

Dr Debelle, in a speech comparing the US and Australian housing markets, said the level of loan defaults in Australia remained at “extraordinarily low levels”, with only 0.5 per cent of all loans failing.

In response to a question, Dr Debelle said that when considering non-conforming or so-called sub-prime loans in isolation, the rate rose to about 4.5 per cent, but this was still well below the levels experienced in the US.

AAP