Big banks’ home loan exposure a ‘perpetual concern’

Adam Smith 4 April 2016

Big banks home loan exposure a perpetual concern

Big banks’ exposure to the property market is a “perpetual concern” for regulators.

An executive for the Australian Prudential and Regulation Authority (APRA) has labelled the major banks’ exposure to the property market a “perpetual concern”.

APRA executive general manager of supervision and support Charles Littrell has said the concentration of property lending by the big four banks is a concern for the regulator, The Sydney Morning Herald has reported.

"It is a significant issue of concern to us that close to two-thirds of [the big four banks'] balance sheets are exposed to property…mainly housing loans," Littrell said.

Littrell said while international banking regulation often focused on the concept of banks being too big to fail, the relative importance of the major banks to the Australian economy meant they were “almost too big to get sick”, The Herald reported.

Littrell hinted that banks would likely be required to hold more capital in order to reduce bank leverage and risk.

“We have already said we are not going to announce our final capital strategy until the end of this calendar year, but it will ultimately be a higher capital requirement than we have now," Littrell said.

"We have indicated quite strongly that it won't be that much higher that the banks couldn't get there either by raising the money or accreting the capital over a few years from dividends."

For a look at how banks’ capital requirement could impact your home loan interest rates, click here.

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