While lenders around the world are being hurt, many will not take the heat as much as Australia's four largest banks. Many will lose billions of dollars in commercial loans due to over inflated property values. Many of these banks have found themselves with property that has been inflated since the property boom, and are now left to stand a large loss.
According to one bank official, who did not want to be named, the recent increase n interest rates that goes higher than the Reserve Bank's benchmark rate are in fact that high in an effort to help compensate for the loss that these banks may see.
The banker said, in remarks about this increase, "In these boom times, all the major (property) groups have been borrowing money against property using friendly valuers, and several banks have been happy to accept those friendly valuations." He added, "But now it's all come to a screaming halt and everyone's holding these valuations and they don't know what to do with them."
In addition to these overinflated values, many feel that unscrupulous activity is causing the problem. Over valuing properties may have been purposely inflated to allow for more spending ability.
On all accounts, the four largest banks in Australia, and note holders are likely to see a significant drop in value.
