Australian banks have kept their exposure to bad loans to low levels, unlike their US counterparts, new figures show.

The latest Reserve Bank of Australia (RBA) data has revealed that the The ratio of bad loans to total assets rose marginally from 0.31 per cent to 0.36 per cent in the June quarter.

An impaired asset is a loan with principal and interest unpaid for at least 90 days, unless the lender has adequate collateral.

“Australia’s reputation for having the strongest banking system in the globe has been enhanced by the latest data,” Commsec chief equities economist Craig James said.

While the ratio of bad loans has nearly doubled in the past six months, 0.19 per cent last December, it was still under the long-term average of 0.44 per cent.

The dollar value of bad debts held by local banks rose by $1.45 billion to $8.7 billion in the three months to June 30 this year.

“Not only is the impaired asset ratio still below long-term averages, it’s well down from the highs recorded in the difficult times in the mid 1990s,” James said.

“Certainly bad loans at Australian banks have risen in response to pressures exerted by the global credit crunch.”

James said the low level of bad loans vindicated the RBA’s confidence about the health of the Australian banking system compared with its overseas counterparts.

In the past month, the US financial sector has been engulfed by the collapse and rescue of several major financial companies exposed badly to the sub-prime mortgage crisis.

The US government has taken over mortgage companies Fannie Mae and Freddie Mac and insurer American International Group (AIG) to stabilise the American financial system.

The fourth largest US investment bank Lehman Brothers filed for bankruptcy this week after huge exposures to risky real estate holdings ended its 158-year-old tenure.

RBA governor Glenn Stevens yesterday expressed his confidence in the local banking system.

“The Australian banking system, even in the cases of where there had to be some provisions for writedowns, we are talking about profits being slightly lower than they otherwise would be,” Stevens said.

“But still very good profits, still ample capital, still ample access to funding, more expensive certainly.

“But this is light years away from what is happening in other banking systems around the world.”

Prime Minister Kevin Rudd reiterated Stevens’s upbeat assessment of the Australian banking system.

“The advice of the regulators is still that Australia’s financial institutions are in sound shape, that the order of their balance sheets is strong,” Rudd told reporters in Canberra.

“There is a world of difference between the circumstances surrounding Australia’s financial institutions and those which face financial institutions abroad.”