- Title: Australia'a ANZ Bank increasing caution on property lending
- Date: 30th November 2016
- Summary: SYDNEY, AUSTRALIA (NOVEMBER 20, 2016) (REUTERS) AUSTRALIA AND NEW ZEALAND BANKING GROUP (ANZ) CHIEF EXECUTIVE SHAYNE ELLIOT ELLIOT SPEAKING TO JOURNALISTS (SOUNDBITE) (English) AUSTRALIA AND NEW ZEALAND BANKING GROUP (ANZ) CHIEF EXECUTIVE SHAYNE ELLIOT SAYING: "At this point, it seems to be where there is over building, it tends to be in a certain niche market so it will be in student accommodation, so quite small apartments. The question there is, there's not one market for real estate so if they fell in price it's not clear what that would do to mums and dads properties, three-bedroom units out in suburban Sydney and Melbourne. I don't know that they're (the markets) are fungible but it is something we watch really closely, So, yes we're concerned but I don't know that it necessarily means the whole market, Brisbane as well." WHITE FLASH SOUNDBITE) (English) AUSTRALIA AND NEW ZEALAND BANKING GROUP (ANZ) CHIEF EXECUTIVE SHAYNE ELLIOT SAYING: "It doesn't mean profitability would stay but in terms of soundness, survival, capital ratios, the ability to continue to lend etc. look ok. Because you know, it's interesting, in Australia what we call a dynamic loan evaluation. If I took my loan book today and I look at the value of the properties that that supports, that loaned value is about 52 percent. So that says on average, and average is a very dangerous thing, but it says on average prices could half and most people would still, they wouldn't be underwater, but again you got to be careful because that's an average." WHITE FLASH SOUNDBITE) (English) AUSTRALIA AND NEW ZEALAND BANKING GROUP (ANZ) CHIEF EXECUTIVE SHAYNE ELLIOT SAYING: "If you walk in tomorrow for a mortgage and we assess your ability to repay, we stress test it more. What if something happens etc.? By the way, the way that the rules work in Australia under a regulator, when you walk in today we have to assess your ability to pay today's rate on the mortgage but also today plus 3 and a quarter percent and so that's a buffer that's built in to say well look, if interest rates went up or frankly if your incomes fell a little bit, it gives you a sense, so we do do that."
- Embargoed: 15th December 2016 08:11
- Keywords: Australia ANZ Shayne Elliot property lending bank
- Location: SYDNEY, AUSTRALIA
- City: SYDNEY, AUSTRALIA
- Country: Australia
- Reuters ID: LVA0015AMY171
- Aspect Ratio: 16:9
- Story Text:EDITORS PLEASE NOTE: THIS EDIT CONTAINS WHITE FLASHES TO SEPARATE SOUNDBITES
Australia and New Zealand Banking Group Chief Executive Shayne Elliott on Wednesday (November 30) said his bank has become more cautious about lending to apartment developers and buyers due to concerns about over-development and stagnant household incomes.
The head of Australia's third-largest bank by market value told Reuters the impact a potential decline in value of the inner-city units being built in Sydney, Melbourne and Brisbane often favoured by foreign buyers would have on the broader market for larger suburban homes was unclear.
"I don't know that they're (the markets) are fungible but it is something we watch really closely," he said.
Elliott said ANZ ran scenarios based on property price fall of up to 40 per cent and a near-doubling of unemployment as part of its stress testing.
"It doesn't mean profitability would stay but in terms of soundness and survival, capital ratios, the ability to lend look ok," he said, adding ANZ's mortgage portfolio had an average loan to value ratio of 52 percent.
Housing completions reached a record quarterly high in June 2016, but Fitch Ratings on Wednesday said Australian dwellings completed, when compared to population, have remained relatively stable over the recent years.
Elliott said he was concerned, however, that wage growth in Australia had stagnated, with household income falling in some parts of the country.
At a Reuters Newsmaker event in Sydney, he cited the example of a worker in Western Australia who was paid A$200,000 a year during a resources boom but whose wages had fallen to A$80,000 after a fall in commodity prices led the miners to cut their workforces.
Elliott said that experience, along with a trend toward more part-time work, had led ANZ to be increasingly cautious about lending.
"If you walk in tomorrow for a mortgage and we assess your ability to repay, we stress test it more. What if something happens etc.? By the way, the way that the rules work in Australia under a regulator, when you walk in today we have to assess your ability to pay today's rate on the mortgage but also today plus 3 and a quarter percent and so that's a buffer that's built in to say well look, if interest rates went up or frankly if your incomes fell a little bit, it gives you a sense, so we do do that," he said.
The vast majority of home loans in Australia are variable, with the banks tending to adjust the interest rate soon after the Reserve Bank of Australia announces a change in the cash rate.
The "Big Four" banks declined to pass on the full amount of a 25 basis point cut in the cash rate to consumers in August, sparking public and political outrage that led to all four CEOs being called to testify before a parliamentary committee.
The bank CEOs argued they are heavily reliant on wholesale funding which is not linked to the cash rate.
Elliott said he would not rule out the prospect of his bank raising mortgage rates in a move that was out of step with the central bank cycle. - Copyright Holder: REUTERS
- Copyright Notice: (c) Copyright Thomson Reuters 2016. Open For Restrictions - http://about.reuters.com/fulllegal.asp
- Usage Terms/Restrictions: None
