Inquiry risks credit crunch
Bank inquiry fuels fear of tighter policies
The risk of a sharp credit crunch is rising, according to analysts at investment bank UBS, which is warning of a “disorderly” housing correction.
THE risk of a sharp credit crunch is rising, according to analysts at investment bank UBS, which is warning of a “disorderly” housing correction.
It comes on top of dire cautions from Treasury secretary John Fraser, who this week told a Senate committee that a dramatic tightening in lending standards by the nation’s banks could result in a surprise shortage of credit in the economy.
In his opening remarks to the Senate economics committee on Tuesday, Mr Fraser, himself a former UBS banker, said it was “early days yet to make an informed judgment”.
But he added: “There is a risk that there is an unanticipated tightening in financial conditions through reactions to the royal commission”.
In a note yesterday, UBS analyst Jonathan Mott said the housing market was already slowing.
“Given the number of headwinds the market is facing, many investors are now questioning whether the housing correction could become disorderly,” he said.
“We expect credit growth to slow sharply and believe the risk of a credit crunch is rising.”
Mr Mott said the banking royal commission was taking a “much more rigorous” approach to responsible lending and as a result, banks were now moving to more thoroughly assess borrowers’ status.
Bank boards would likely become more risk averse, he said, after Treasurer Scott
Austal chief David Singleton said that the Pacific Patrol Boat program was progressing well
Morrison warned of “jail time” for badly behaved executives and that slicing commissions paid to mortgage brokers would result in fewer loans being pushed on to customers.
Further, new rules outlined by the prudential regulator to clamp down on heavily indebted borrowers were likely to become a “binding constraint”, Mr Mott said. It came at the same time a likely federal Labor government after the next election would be forced to act on pledges to limit negative gearing — further placing downward pressure on credit growth, he said.
Credit rating agency Standard & Poor’s Global Ratings has warned households could encounter more financial stress if they struggled to refinance their loans should banks overhaul lax lending standards after the royal commission.