The second major factor affecting the banks is the financial health of their customers. Not all customers - they work on median and average customers to assess the robustness of the bank’s loan book. Elliott’s verdict on that front is that customers are in rude health.

The data, which Elliott says is instructive, says households in Australia and New Zealand are healthier, more liquid and more employed than ever. Aggregate household net debt is around zero, and the lowest it’s been in 15 years. And that excludes superannuation and property assets, Elliott noted on Thursday.

“Home loan balances for our Australian customers are up about 10 per cent on average compared with pre-COVID (and) the more expensive personal loan and credit card balances are down 5 and 12 per cent respectively.

Home loan offsets are up about 50 per cent on average and deposits overall are up 27 per cent per customer. Small business customers in Australia are equally robust,” he told this masthead.

The cohort that defies these averages are the first home borrowers that bought at the top of the housing market and at the interest rate low point. This tail end is struggling.

Higher interest rates and a slowing economy will no doubt test sentiment, according to Elliott, but the healthy state of the average household budget means that even some deterioration is acceptable.

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The standard measure for banks is 90 days past due - ie customers who are three months behind in interest payments. That number is about 1 per cent over the longer range period through the cycle.

During COVID this number peaked at 1.3 per cent but it’s currently 0.7 per cent -a number that Elliott describes as “unbelievably low”.

“Undoubtedly it will get worse but…. even if it doubles it’s still not a big number,” says Elliott who doesn’t think for a moment that things would go back to pandemic levels.

The economy as a bit stodgy and a way off recession, according to Elliott, who points out that people are still spending. In any event, Australian banks today have moved to a less risky profile.

“Banks get themselves into trouble when they do something stupid and take on too much risk or their customers doing something stupid and taking too much risk,” Elliott said.

But given corporate Australia’s debt levels are the lowest they have ever been, there has been less opportunity for banks to fall into that trap. And Elliott contends the riskier individuals and companies are borrowing outside the traditional banking system.

“The banks aren’t doing the risky stuff (like lending to property developers). So that stuff doesn’t come back to bite you.”

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