SA state bank hit by economic crisis

February 25, 1991

By Liam Mitchell

ADELAIDE — A $1 billion blowout of the State Bank's budget has prompted the establishment of a Royal Commission to investigate the funds of the bank, as well as calls from opposition members for premier and treasurer John Bannon to resign.

Following the collapses of the state banks in Victoria and Western Australia, this crisis is a product of the recession and extravagant lending to business following deregulation of the banking and finance sectors.

The government has injected about $970 million from its budget into the bank to bail it out, through an internal juggling of assets within government instrumentalities.

This has raised concerns within the community as to where the money for this rescue package is to come from. The Government Agencies Review Group has already identified several areas of possible job cuts, amounting to just over 1700 jobs.

These include 500 jobs in the Electricity Trust, 370 in Housing and Construction, 250 in the State Transport Authority and 200 in the Housing Trust.

The Australian Bank Employees Union fears that some 600-800 jobs could also be lost in cutbacks within the State Bank — a cut of around 20-30 per cent.

The crisis was realised in late January when an independent group estimated that the level of bad and doubtful debts could reach $2.5 billion.

The bank's chairperson, David Simmons, has blamed the problem on the property market and a downward spiralling economy. The State Bank has about $300 million invested in the Remm Myer building project, which is already running behind time and over budget. Commercial property values had also dropped by about 50 per cent.

The State Bank has debts of about $5 billion in the Japanese financial market and has been hit by corporate crashes in New Zealand, where it is the country's fifth largest bank. It has also suffered from major corporate collapses in Australia, including the National Safety Council of Victoria and Qintex.

However much the bank's crisis is tied up in the overall economic situation and the collapses of a number of large corporations and the property market, it looks increasingly likely that it will be the taxpayers themselves who will pay for the damage through the introduction of new and increased taxes and cuts to major government services.

With the government on the brink of following the paths of the Victorian and West Australian governments, Bannon has stated that if the rescue package does not work, he will go to the polls.

The Royal Commission has yet to have its terms of reference defined, but will almost certainly look specifically at the crisis, in isolation from the rest of the economy and the real reasons for the bank's current financial situation.

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