Australia: Loans and Lockdowns in Australia: Real Estate Market Update and Local Banking Exposures
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Real estate market update and local banking sector exposures
Navigating a pandemic
At the onset of COVID-19 18 months ago, we drew attention to how APRA’s forward-looking approach to regulation has positioned Australia’s financial system to function and support the economy in a crisis. as deep as that caused by the pandemic.
The many responses since then to fiscal, monetary and prudential regulations continue to support the Australian economy, with GDP growth of 0.7% in the June quarter.1defying widespread expectations of a contraction, but with many headwinds remaining.
Key points to remember
- The value of loans made at six times the borrower’s income – a threshold deemed “risky” by APRA – increased 92% in the 12 months ending June 2021 and 193% since the start of the statement in March 2019. In addition, APRA has announced that it expects lenders to assess the ability of new borrowers to repay their loans at an interest rate of at least 300 basis points at- above the rate of the loan product; an increase of 50 basis points over the 250 basis points commonly used by ADIs.
- ADIs continue to increase their exposure to commercial real estate, increasing an additional 5.4% over the year through June 2021, significantly more than the 3.5% increase in exposures recorded the previous year.
- Balances held in clearing accounts decreased by 1.3% in the June quarter, contributing to slower growth over the year through June 2021 (+ 13.6%) compared to March 2021 (+ 17.9%).
- As the major Australian banks continue to dominate the lending market, the non-bank lending sector continues to increase its market share in core debt lending as the sector is poised for a phase of growth.
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