Re­vamp of banks’ lend­ing process tipped to spark credit crunch

Townsville Bulletin - - NEWS | BUSINESS -

AUS­TRALIA could face a full- blown credit crunch if the bank­ing royal com­mis­sion calls for sweep­ing im­prove­ments to banks’ lend­ing stan­dards, in­dus­try ex­perts say.

An­a­lysts at in­vest­ment bank UBS say the bank­ing sec­tor is fac­ing a pe­riod of “sus­tained earn­ings pres­sure”.

UBS bank­ing an­a­lysts, led by Jonathan Mott, say the fi­nal re­port may rec­om­mend re­tail banks be banned from us­ing de­mo­graphic bench­marks as the key yard­stick to ap­prove home loans. To save on costs, Aus­tralia’s banks have been widely us­ing a con­tro­ver­sial bench­mark known as the House­hold Ex­pen­di­ture Mea­sure to ap­prove loans.

UBS an­a­lysts said Com­mis­sioner Ken­neth Hayne was likely to rec­om­mend the use of the bench­mark be lim­ited or banned. If so it could lead to a fur­ther re­duc­tion in the bor­row­ing ca­pac­ity for many con­sumers, UBS said.

“The risk of the cur­rent credit squeeze turn­ing into a credit crunch is real and ris­ing, with the hous­ing mar­ket now fall­ing sharply.

“The bank­ing sec­tor is fac­ing a pe­riod of sub­stan­tial and sus­tained earn­ings pres­sure.”

Prop­erty prices in Syd­ney, Aus­tralia’s big­gest hous­ing mar­ket, have dropped 9.5 per cent since their peak last year and are on course for their big­gest slide on record, and prices in Mel­bourne have also fallen.

Econ­o­mists have said con­cerns about the house prices are flow­ing through the hous­ing con­struc­tion mar­ket.

New- home build­ing ac­tiv­ity de­clined 0.8 per cent the past quar­ter fol­low­ing gains of 3.5 per cent and 3 per cent in the pre­ced­ing quar­ters.

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