Revamp of banks’ lending process tipped to spark credit crunch
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.