Could Australia’s big banks face headwinds by restrictions on lending?
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After a period of rapidly rising house prices, markets are now turning their attention to the possibility of policy restrictions, which could be aimed at stemming the flow of credit.
In recent commentary, the RBA itself has said it is monitoring trends closely.
“Whether or not there is need to consider macro-prudential tools to address these risks is something we are continually assessing”, RBA assistant governor Michelle Bullock said last week.
This week, Treasurer Josh Frydenberg flagged pending policy changes in an interview with the Australian Financial Review.
“We must be mindful of the balance between credit and income growth to prevent the build-up of future risks in the financial system,” he said
“Carefully targeted and timely adjustments are sometimes necessary. There are a range of tools available to APRA to deliver this outcome.”
Many banking and lending stocks on the ASX have benefited from the credit binge ranging from the big banks to non-bank lenders – some of which only listed in the last 12 months.
Could their momentum be undone by new regulations?
Weighing in was Morningstar analyst Nathan Zaia who said it would ultimately depend on what was bought in.
Zaia said the most likely would be a cap on the percentage of loans with a debt/income level above six, and/or an increase in serviceability floors.
Considering over 20% of loans exceed this rate – up from 15% pre-pandemic – such regulations would at first glance slow the tide.
But Zaia isn’t so certain that if the mortgage tide was slowed, lending restrictions would be the only factor.
“We don’t think restrictions will strangle credit growth entirely, with the easing of international travel restrictions likely to see some of the money built up in offset accounts spent on travel and other big-ticket purchases such as a new vehicle,” he said.
Zaia forecasts growth in housing credit, currently at 7.5% would slow to 4% by 2023.
He says the impact on individual banks would depend in part on the size of their loan books.
However, he said CBA (ASX:CBA) and Westpac (ASX:WBC) would be more affected, with home loans making up around 70% of their loan books. That figure is more like 60% for ANZ (ASX:ANZ) and NAB (ASX:NAB).
Inevitably all of them would be affected if there was a sharp drop in housing prices and or rising unemployment.
“It will leave the banks heavily exposed to loan losses,” Zaia said.