Banking Stability to Won’t be Affected by Housing Downturn in Australia

Banking Stability to Won’t be Affected by Housing Downturn in Australia

Sydney: A senior central bank official has downplayed the chances of a slowdown in Australia’s once-booming housing market undermining the stability of the country’s banks, saying the risk appears to be low.

Reserve Bank of Australia (RBA) Assistant Governor Michele Bullock sounded comfortable on Monday about the level of household debt and the ability of everyday Australians to keep up with rising repayments.

While giving a speech at Albury, Bullock said, “The banks in Australia are well capitalized.”

She further added, “The lending standards have been made strict over the past few years, though they were not bad, to begin with. The arrears on housing loans still remain very low.”

Bullock, however, said an adverse shock to the economy could see households struggling to meet repayments on their mountain of debt, which is among the world’s highest at 190 per cent of income.

Even so, Bullock said it appeared that average households had “some ability to absorb some increase in required repayments”.

Three of Australia’s four major lenders including Commonwealth Bank and Westpac hiked their mortgage rates in the past two weeks, raising fears increased debt repayments will further slow the property market and hurt consumer spending.

Subdued consumption by indebted households is one of the biggest concerns for the RBA which has held interest rates at a record low 1.50 per cent since last easing in August 2016.

Bullock said some households were feeling the pressure of high debt levels and recent increases in repayments but cited several reasons the situation was not worrying.

“First, the economy is growing above trend and unemployment is coming down,” she said.

Australia’s A$1.8 trillion economy expanded at a surprisingly fast annual 3.4 per cent last quarter while the jobless rate has eased to 5.3 per cent.

Second, average households were far ahead on their repayments already, while a recent improvement in lending standards has boosted the quality of banks’ and households’ balance sheets, Bullock added.

She also said that the loan-to-valuation ratios for many borrowers have come down due to the growth in housing prices in many regions over the recent years.

(Inputs from Reuters)