Banks warned about housing crash



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A global ratings agency has reduced its credit rating for 23 lenders due to “an increased risk of a sharp correction in property prices”.

These downgrades by S&P Global Ratings applied to smaller lenders such as AMP Bank, Bendigo & Adelaide Bank and a range of credit unions and non-bank lenders (see table below).

S&P did not change its ratings for Australia’s five largest lenders – ANZ, Commonwealth Bank, NAB, Westpac and Macquarie Bank.

The reason a housing crash is now more likely is because there has been a rise in “economic imbalances” caused by “strong growth in private sector debt and residential property prices in the past four years”, according to S&P.

If a crash did occur, lenders would probably suffer “significantly greater credit losses” than at present.

These losses would be “amplified by the Australian economy’s external weaknesses, in particular its persistent current account deficits and high level of external debt”.

Lenders should be alert but not alarmed

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S&P said that although risks have increased, the outlook for Australian banks remains “relatively benign” by global standards – partly because APRA, the banking regulator, has been acting to remove risk from the banking sector.

“We consider that recent and possible further actions by the Australian authorities should aid in an unwinding of the imbalances in an orderly fashion, as has generally been the case in the past several cycles in Australia – and may have already started in Sydney and Melbourne,” S&P said.

“This is most likely to occur through slower growth – or even a mild drop – in property prices over the next two years, without causing any significant increase in credit losses incurred by the Australian banks.”

 

Lenders with unchanged ratings

Lender Rating Outlook
ANZ AA- Negative
Commonwealth Bank AA- Negative
NAB AA- Negative
Westpac AA- Negative
Macquarie Bank A Negative

 

Lenders with changed ratings

Lender Old rating New rating
AMP Bank A+ A
Australian Central Credit Union BBB+ BBB
Auswide Bank BBB BBB-
Bank Australia BBB+ BBB
Bank of Queensland A- BBB+
Bendigo & Adelaide Bank A- BBB+
Community CPS Australia BBB+ BBB
Credit Union Australia BBB+ BBB
Defence Bank BBB+ BBB
Fisher & Paykel Finance BB BB-
G&C Mutual Bank BBB BBB-
Greater Bank BBB+ BBB
IMB BBB+ BBB
Liberty Financial BBB BBB-
ME Bank BBB+ BBB
MyState Bank BBB+ BBB
Newcastle Permanent Building Society BBB+ BBB
Police Bank BBB+ BBB
Qudos Mutual BBB BBB-
QPCU BBB BBB-
Rural Bank A- BBB+
Teachers Mutual Bank BBB+ BBB

S&P ratings range from AAA to D. Click here for an explanation of the system.

 

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