This morning I posted about what I consider to be somewhat perverse logic used by the RBA in their attempt to talk down the systemic banking risk presented by the 2009 first home buyer cohort and what seemed to be a very different view of that risk presented by a recent UBS report.
This afternoon ANZ added a little more to the conversation with what seems to be an opinion set somewhere between the two previous points of view.
The rise in Australian residential mortgage arrears is a concerning trend and is unlikely to reverse quickly, a senior executive at No.4 lender Australia and New Zealand Banking Group said, echoing recent comments by ratings agency Fitch.
“Household arrears are a concerning trend. It is a problem that is going to stay for a while,” Philip Chronican, the Chief Executive of ANZ’s Australian operations said on the sidelines of a business conference on Thursday.
Last week ratings agency Fitch said the 30-day Australian home loan delinquencies jumped 42 basis points to a record high of 1.79 percent in the first quarter, hit by Christmas spending, a November interest rate rise, rising costs and natural disasters.
“Yes, you want to watch it, but it is not disaster,” Chronican said, adding defaults were below levels recorded in other major economies there was no risk of a blowout. He said house prices, which have doubled in the last 10 years but eased in the past months, were likely to stay weak.
Mortgages make up nearly two-thirds of top Australian banks loan books and recent fall in house sales and prices are the biggest challenges for the banks.The removal of first home owners grants and rising interest rates have slowed home loan growth to 6.6 percent a year, the lowest level in 30 years. Prices slipped 1.7 percent in the March quarter, the most since 2008, according to official data.
With further interest rate increases expected, Chronican said house prices, which are near unaffordable levels, would continue to remain weak.
While Fitch said delinquency levels were still low, any further interest-rate rises, as well as recent increases in the cost of living, might put mortgage payments under more long-term pressure.
Concerns over a softening housing market and rising cost of funds, given worries over sovereign debt woes in Europe, have hurt Australian bank shares.
The top banks-National Australia Bank , Commonwealth bank of Australia , Westpac and ANZ, are at several month lows, with ANZ the hardest hit down 8.4 percent so far this year.
I think it says something about the current state of the lending market that someone who represents one of the big banks is willing to be so candid about rising arrears.
I am not surprised by the statement, but I do have to wonder about the logic behind the words “defaults were below levels recorded in other major economies there was no risk of a blowout”. I have seen this sort of statement a number of times in recent weeks. So who are we comparing ourselves to here? The USA, Ireland , the UK ?
I can think of a number of scenarios that could lead to a “blow out”, such as a continuing downturn in the housing market, leading to a fall in the broader economy leading to rising unemployment… and around you go.
Unless you are a member of the “Australia is different” school of logic, it really isn’t a great leap in thinking to understand that the risk exists given the recent experience of other “major economies”.