The ABC has tonight delivered its second instalment on Australia’s housing bubble, the brewing banking crisis and tomorrow night – what the regulators are doing to try to limit the catastrophic damage.
You can watch tonight’s segment here – Is 1.6 trillion dollars in housing loans too hot too handle?
The ABC says there is good reasons to be wary of our banks $1.6 trillion exposure to Australia’s hot property sector with the banks borrowing a lot of money from foreigners with the backing of their mortgage portfolios.
As we reported back in November last year, (‘Have the Big 4 just flunked APRA’s stress test?‘) Australia’s banks are super profitable, but it comes about from flouting their privilege in calculating their own risk ratings. (‘Australian banks not the safest in the world – far from it‘)
Brian Johnson, a Banking analyst with CLSA told the ABC tonight, any sort of self assessment is fought with danger, “I’ve been a bank analyst for a long time and I’ve never ever seen a bank accurately forecast that there would ever be a problem anywhere.”
We reported in November last year, Westpac only believes 15 percent of its residential mortgages are at risk, the lowest risk rating of any of the banks. The big 4 banks have been cutting their risk ratings so fine to reduce the amount of loss adsorbing capital they need to hold, all in a bid to increase super profits and out do each other.
The ABC reported tonight, the OECD is recommending regulators, such as Australia’s banking regulator APRA, should no longer accept the banks own risk assessments of their own mortgage portfolios. Australian banks are now holding less capital than before the GFC hit, due to their watered down risk ratings.
A lack of capital underpinning the banking system could raise its ugly head if our over-extended property market begins to level off.
Both Martin North of Digital Finance Analytics & Brian Johnson is concerned with the behaviour of the irrational negative gearing investor with interest only loans. Currently they lose money, week after week, though poor rental returns but with the hope of big capital gains when they sell. If the unsustainable and overheated property market were to level off, or start falling, all these investors could head too the exits at the same time.
Australia is only one of three countries with negative gearing on residential property and a housing correction of the size we now face has never been tested before.
Tomorrow night the ABC will examine what (little) regulators are doing in trying to contain the situation.
» Australian banks not the safest in the world – far from it – Who Crash the Economy?, 8th December 2015.
» Have the Big 4 just flunked APRA’s stress test? – Who Crashed the Economy?, 16th November 2014.
» Too big to fail – Who Crashed the Economy?, 18th November 2012.
» Is 1.6 trillion dollars in housing loans too hot too handle? – The ABC, 14th April 2015.
» Australian banks’ mortgage concentration worries analysts – The ABC, 14th April 2015.