DOWNGRADE FOR 23 AUSSIE BANKS
S&P warns about risks of property market downturn
SYDNEY would be amplified by the Australian economy’s external weaknesses, in particular its persistent current account deficits and high level of external debt.”
S&P exempted the country’s four largest mortgage lenders — Australia & New Zealand Banking Group Ltd, Commonwealth Bank of Australia, Westpac Banking Corp and National Australia Bank Ltd — on the assumption that the government would step in to provide support if needed. It also opted not to lower the ratings for Macquarie Group Ltd and its banking unit.
Other ratings companies have voiced similar concerns about risks stemming from Australia’s housing market.
Moody’s Investor Services said this month the combination of low wage growth and rising house prices meant households were becoming more highly leveraged, thereby “increasing the major banks’ sensitivity to external shocks”. The ratings company lowered its outlook for the five largest banks to negative in August last year.
Fitch Ratings expects pressures in the housing market to grow, but remain manageable given the strength of the Australian banking system. “It would take a significant rise in unemployment or interest rates to cause meaningful losses on mortgage lending,” said senior Fitch director Tim Roche.
Home prices here and in Melbourne have surged in the wake of unprecedented interest-rate cuts by the Reserve Bank of Australia as the country navigates its way through the aftermath of a mining boom. Regulators have progressively tightened lending restrictions amid concerns about financial stability.
In March, the Australian Prudential Regulation Authority introduced new restrictions on interest-only lending and the Australian Securities & Investments Commission said it was investigating lending standards in that sector of the mortgage market.
S&P last week maintained Australia’s sovereign rating at “AAA” with a “negative” outlook. The ratings firm warned then the nation’s prized top ranking would only be secure once there was “meaningful moderation” in housing and credit growth. Bloomberg