Fears over riskier bank loans

Port Douglas & Mossman Gazette - - FRONT PAGE - Michael Ben­nett

THE big banks are writ­ing more in­ter­est-only home loans and a large num­ber with high loan-to-value ra­tios, amid con­cerns low in­ter­est rates and hot com­pe­ti­tion is fu­elling over­heat­ing in some pock­ets of the prop­erty mar­ket.

High LVR lend­ing, con­sid­ered riskier as the loan is more than 80 per cent of the prop­erty’s value, made up more than 30 per cent of ap­provals by the big banks in the June quar­ter, ac­cord­ing to Aus­tralian Pru­den­tial Reg­u­la­tion Au­thor­ity data.

The new quar­terly pa­per on the banks’ prop­erty ex­po­sures re­leased by the au­thor­ity this week also re­vealed in­ter­est-only lend­ing made up about 40 per cent, slightly above the run-rate of re­cent years.

JPMor­gan an­a­lyst Scott Man­ning said the high LVR lend­ing might come un­der greater scru­tiny, given re­cent moves in New Zealand to put a ‘‘speed limit’’ on the loans. He said ris­ing house prices ‘‘as­sisted’’ by the Re­serve Bank’s cuts to the of­fi­cial cash rate could add to con­cerns.

‘‘Whilst this run rate re­mains in line with his­tor­i­cal stan­dards, it may be sub­ject to greater scru­tiny given the con­text of ris­ing house prices do­mes­ti­cally, as­sisted by re­duc­tions to the RBA cash rate, and the broader back­drop of macro- pru­den­tial pol­icy mea­sures be­ing in­tro­duced in the New Zealand mar­ket,’’ he said.

In a bid to cool its boom­ing prop­erty mar­ket, the Re­serve Bank of New Zealand last week un­veiled rules re­strict­ing the banks’ LVR loans above 80 per cent to no more than 15 per cent of new vol­umes. Com­mon­wealth Bank, West­pac, ANZ and National Aus­tralia Bank have sub­sidiaries in New Zealand and Mr Man­ning noted the pro­por­tion of high LVR lend­ing at some of the banks had been run­ning at dou­ble the new limit.

James Free­man, of Deutsche Bank, es­ti­mated the speed limit would re­duce earn­ings by up to 0.4 per cent, with ANZ the most af­fected given its large New Zealand lend­ing book.

While the Re­serve Bank is viewed as un­likely to im­pose sim­i­lar rules in Aus­tralia, given softer credit growth, prom­i­nent real es­tate agents have ex­pressed con­cern at the ‘‘hot’’ con­di­tions in in­nercity es­tab­lished hous­ing.

In con­trast, res­i­den­tial con­struc­tion de­clined 0.1 per cent in the three months to June 30 com­pared with the pre­vi­ous quar­ter, to be up 4.3 per cent across the year, ac­cord­ing to the Aus­tralian Bureau of Statis­tics. This was de­spite the RBA cut­ting rates 225 ba­sis points in the past two years.

Gold­man Sachs econ­o­mist Tom Toohey said the re­cov­ery in res­i­den­tial con­struc­tion re­mained ‘‘dis­ap­point­ing’’.

The sub­dued de­mand for credit com­pared with be­fore the global fi­nan­cial cri­sis has spurred a mort­gage war among the banks.

Newspapers in English

Newspapers from Australia

© PressReader. All rights reserved.