Credit rating agency Fitch has placed Australia’s banks on a negative credit watch, citing an increase in macro-economic risks stemming from the property asset bubble.
Fitch indicated a key risk for the banking system was the banks’ exposure to the overheated property market. Of special concerned is strong increases in household debt levels relative to household disposal income – at a time when Australia’s household debt relative to household disposal income sits at a staggering 187 per cent, one of the highest levels in the world.
“Household debt is high and rising relative to disposable incomes, making borrowers sensitive to changes in the labour market and interest rates,” Fitch analyst Andrea Jaehne stated.
Pressure from multiple fronts has forced Australian banks to hike interest rates in recent months following upward trends around the globe. But with significant levels of household debt, Australian households are going to feel the brunt of the rate hikes, more so than other countries with much more prudent household debt levels.
Fitch also expresses concern about growing job losses. Abnormally high housing costs has forced wages sky high in Australia, making the country a high cost economy and one struggling to compete in a global free market. This has caused the closure of complete industries and accelerated the offshoring of an increasing number of jobs, the very jobs required to service the high levels of household indebtedness. Essentially, Australia has a significant misallocation of capital towards unproductive markets such as housing, and at great expense to productive sectors of the economy.
Investor loans surge 21.4 per cent
Adding to macro-economic concerns is today’s release of housing finance commitments from the Australian Bureau of Statistics. Despite efforts by regulators to curb lending growth through macro-prudential controls, the value of loans to property investors surged 21.4 per cent over the year.
It’s more mounting evidence just how ill-equipped Australian regulators are in engineering a controlled, safe landing.
» Fitch Ratings turns negative on Australian banks – The AFR, 16th January 2017.
» Housing investor loan approvals surge 21.4 per cent in a year – The Sydney Morning Herald, 17th January 2017.