Housing debt putting banks at risk

Adam Smith 15 July 2016

danger aheadA buoyant housing market and low interest rates may cause problems.

Ratings agency Moody’s has warned that Australia’s major banks are vulnerable to economic shocks, the Australian has reported. The agency said rising household debt as a result of surging property prices could combine with consistently low interest rates to make banks more sensitive to economic shocks.

“These headwinds could, over time, put pressure on the credit profiles of Australia’s major banks, particularly in the context of their very high ratings,” Moody’s vice president and senior analyst Frank Mirenzi said.

Moody’s said a combination of low income growth and rising house prices - particularly in the Sydney and Melbourne markets - have led to an increase in household debt.

“Coupled with bank portfolios that have unusually high levels of concentration to residential mortgages, Moody’s believes that risks to Australian banks are increasingly skewed to the downside,” Moody’s said.

The agency raised the question of whether the major banks could maintain their margins through further RBA rate cuts.

“If, at the same time, tighter housing loan underwriting criteria increase price competition for lower-risk loans, then bank margins may be squeezed and become increasingly sensitive to volatility in wholesale market funding costs,” Moody’s said.

The comments come after fellow ratings agency S&P changed Australia’s credit rating outlook from stable to negative.

Ask a Question

You are about to post a question on finder.com.au

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com.au is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Disclaimer: At finder.com.au we provide factual information and general advice. Before you make any decision about a product read the Product Disclosure Statement and consider your own circumstances to decide whether it is appropriate for you.
Rates and fees mentioned in comments are correct at the time of publication.
By submitting this question you agree to the finder.com.au privacy policy, receive follow up emails related to finder.com.au and to create a user account where further replies to your questions will be sent.

Ask a question