Via Credit Suisse comes confirmation of what we’re seeing RMBS for household credit stress:
■ Mortgage & card past-due ratios and mortgage impaireds ratios rose in the latest quarter, with loss rates stable in mortgages but rising in cards. Whilst acknowledging seasonality, a slowing Western Australian economy, and residual impacts of Cyclone Debbie, mortgage past-due ratios in particular appear to be structurally rising. More general trends that we saw during the quarter were as follows: Impaireds: The impaireds ratio edged lower again by 1bp (to 0.27%) driven out of business (cards & mortgages impaireds increased); WBC was the lowest amongst the majors at 0.19%. Past-dues: The past-due ratio edged up higher again by 1bp (to 0.29%), driven out of mortgages and cards (business lower); NAB was lowest amongst the majors at 0.14%. Loss rates: Actual losses declined to 0.13% (0.19% sequentially), albeit loss rates in cards has been rising recently. Capital: Major bank equity Tier 1 ratios ranged from 9.70% (NAB) to 10.11% (CBA), with risk weights flat-to-declining (albeit mortgage risk weights were higher again at 25% vs. 24% sequentially: ANZ 26%, CBA 25%, NAB 27%, WBC 24%).
■ Our risk & capital report benchmarks the latest quarter Pillar 3 disclosures for each of the commercial banks (June 2017). For context, our major bank bad debt charge profile is: 0.21% FY16, 0.18% FY17E, 0.21% FY18E, 0.21% FY19E.
■ Our major bank order of preference: WBC (Outperform), NAB (Outperform), ANZ (Neutral), CBA (Neutral).
Worrying in a very low interest rate environment.