Too much lending 'could damage the economy'

A new report published by the International Monetary Fund (IMF) has warned that Australia's huge banking sector could end up having a harmful impact on the nation's economy.

The study – entitled Too Much Finance? – suggested that excessive lending can eventually result in less growth, the Australian reports.

A huge number of Aussies have taken out business and personal loans in recent years and figures provided by the Reserve Bank stated that total credit stands at a whopping $2.1 trillion (this included mortgages too).

Most economists believe the fact that banks are willing to lend so much money out is a good sign and the cash will eventually benefit the wider economy – which is especially the case with business loans.

However, the IMF research asserted that it is very dangerous when loans as a fraction of national income exceed around 100 per cent of a nation's gross domestic product (GDP). Australia has already surpassed this mark, as loans account for 140 per cent of its GDP.

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