MacroBusiness covers Australian banks from the perspective of their macro-economic role, as political economy actors, as investment propositions and in terms of financial stability and capital adequacy. Australian banks have played a crucial role in inflating the Australian property bubble, exist within an utterly privileged position as “too big to fail” institutions and operate within a deeply distorted financial architecture that has Australian tax payers well and truly on the hook in the event of trouble. MacroBusiness seeks to define this role for investors as well as change it in the name of the Australian national interest.
As expected: The Australian Prudential Regulation Authority (APRA) has announced that it will proceed with proposed changes to its guidance on the serviceability assessments that authorised deposit-taking institutions (ADIs) perform on residential mortgage applications. In a letter to ADIs issued today, APRA confirmed its updated guidance on residential mortgage lending will no longer expect them
And I thought “Evil” Anna Bligh had disappeared. But no, via Banking Day: The banking industry is opposed to key parts of ASIC’s proposed overhaul of its guidance on responsible lending conduct, criticising it as a move away from principles-based regulation to a more prescriptive approach, and claiming it will disadvantage small financial institutions and
Via ANZ: Today we have decided we will reduce variable interest rates for our home loan customers by 0.25pc pa. Importantly, we will apply this reduction across all our variable rate home loans. It took the pain last time so now it someone else’s go. CBA’s! In response to the Reserve Bank’s move to cut
Tipping point anybody? Normally Australia’s big banks would soar on rate cuts as volume growth and curve steepening lifted their profits outlook. Not today: Smash. And why we know, from Goldman year’s ago: …if the cash rate was to fall below 1.50%, every additional rate cut thereafter would shave about 5 bp off sector margins.
ASIC wants banks to stop or augment their use of the Household Expenditure Measure (HEM) but the banks have expressed their disdain in new submissions to the regulator released today: WBC: “Accurately verifying basic and discretionary living expenses using transactional account data is currently not feasible and in Westpac’s experience, would be of limited value.”
Why would they? The so called “political pressure” to do so is gone. ScoMo and Recessionberg are banking and property patsies. As well, with each new interest rate cut below 1.5% net interest margins get squeezed. Formerly from Goldman: …if the cash rate was to fall below 1.50%, every additional rate cut thereafter would shave
Recently we saw this, via the AFR: The psychologist inserted by the corporate regulator into boardroom discussions of more than 20 blue-chip companies including Qantas, Woolworths and AMP warns that Australia’s financial sector culture is broken. Elizabeth Arzadon, the regulator’s psychologist of choice, also warns that resistance by boards to public criticism is a mark of
APRA is out with monthly banking statistics for May. Here is the raw data for investment loans: ANZ CBA MQG NAB WBC BOQ BEN SUN May-19 77473 133400 12532 104681 153096 11320 12932 11694 Apr-19 78018 133093 12465 105036 152588 11332 12851 11697 Mar-19 78470 132904 12372 105379 152393 11333 12772 11724 Feb-19 78936 132916
The RBA and APRA may never have escaped capture but is ASIC running free and wild? Via Martin North: In a keynote address by ASIC Chair, James Shipton at Committee for Economic Development of Australia (CEDA) event in Melbourne yesterday, it appears the regulator will hold public hearings about responsible lending practices. He said that ASIC was
By Leith van Onselen The Australian Bureau of Statistics (ABS) yesterday released its National Financial Accounts for the March quarter, which revealed a 2.9% quarterly decline in Australian banks’ gross external liabilities (offshore borrowings), and a 0.2% decrease over the year. One Name Paper (-$21 billion), Bonds (-$10 billion) and Deposits (-$9 billion) drove the
From CoreLogic’s Cameron Kusher: This column is going to be a little controversial however, lenders are well within their rights keep a portion of future rate cuts up their sleeve. Furthermore, the fact that banks have to consider mortgage holders as well as savers is an important consideration. It is true that Australians are obsessed
Yesterday we saw regulatory capture out in the open at the AFR: Westpac has unleashed a fresh wave of property lending by relaxing serviceability conditions on low risk home loans, immediately increasing the borrowing capacity of aspiring home owners by as much as 8 per cent. A spokesman for Westpac confirmed the policy change saying credit officers
Via the AFR: Westpac has unleashed a fresh wave of property lending by relaxing serviceability conditions on low risk home loans, immediately increasing the borrowing capacity of aspiring home owners by as much as 8 per cent. A spokesman for Westpac confirmed the policy change saying credit officers would now have the discretion to approve principal
Honestly, our regulators are the biggest pack of no-hopers, via the AFR: The psychologist inserted by the corporate regulator into boardroom discussions of more than 20 blue-chip companies including Qantas, Woolworths and AMP warns that Australia’s financial sector culture is broken. Elizabeth Arzadon, the regulator’s psychologist of choice, also warns that resistance by boards to
APRA released quarterly ADI property exposures yesterday. It is a great guide to many things but I use it mostly to track interest only mortgages. The good news is that the interest only mortgage bubble that drove the last leg up in Australian house prices is now massively de-risked. The March quarter saw IO mortgage
Dr Wilson N. Sy, – the former head of research for APRA, and executive at ASIC and the Australian Treasury – has published a paper attacking the “farce of fake regulation” after it was exposed by the banking royal commission. Below is the extract: The revelations from the Hayne Royal Commission (HRC, 2019), limited though
Via S&P: Australian prime home-loan arrears rose in April, according to a recently published report by S&P Global Ratings. The Standard & Poor’s Performance Index (SPIN) for Australian prime mortgages, rose to 1.53% in April from 1.51% a month earlier. Arrears in April were up 17 basis points year on year. Arrears were mostly up
Via the AFR: From Monday, NAB said it was introducing new guidelines for Bank of Mum and Dad that “complements the law and, in some areas, sets higher standards”. …Under NAB’s new controls, loan guarantors will face improved scrutiny of their suitability by providing more information about how it will impact their finances and awareness
Via the excellent Jonathon Mott at UBS: We estimate the RBA rate cuts and APRA’s removal of its interest rate serviceability floor may improve maximum borrowing capacity by around 14%. However, these changes need to be considered in the context of ongoing tightening, in particular a new HEM methodology, the rollout of Comprehensive Credit Reporting
From Martin North [my emphasis]: The Australian Prudential Regulation Authority (APRA) has released its response to the first round of consultation on proposed changes to the capital framework for authorised deposit-taking institutions (ADIs). The package of proposed changes, first released in February last year, flows from the finalised Basel III reforms, as well as the Financial
Via Banking Day: Bendigo Bank is among many lenders rationing any flow on from last week’s 25 basis point slice in the RBA cash rate. Better or badder at the big end of banking, Bendigo has reasons. On Friday Bendigo said it would decrease its variable interest rates by 0.20 per cent p.a. for all
Chanticleer is at it again today: At the end of a huge week for the big four banks, it’s time for those reliant on dividend income to think hard about the longer-term implications of official interest rates being lower for longer. There is no need to panic. But as official rates set by the Reserve Bank
By Leith van Onselen The Reserve Bank of New Zealand’s (RBNZ) proposal to impose higher capital requirements on the local arms of Australian banks has been defended by John Vickers, the Bank of England’s former chief economist. He argues that the public benefit of safer banks outweighs any risks associated with such a move. Vickers
Welcome back to the good times, via Banking Day: While ANZ bore the full brunt of the public backlash, ING appears to have escaped scrutiny of its move to pass on only a 17 basis point cut to new borrowers. ING’s actions are potentially more egregious than those of ANZ and Westpac because thousands of
Via The Australian: Forget the radioactive fallout from the Hayne royal commission — the nation’s four major banks have a bigger problem to worry about right now. If New Zealand’s all-powerful regulator Adrian Orr has his way, the big four will be passing the hat around for the next five years to raise an extra
Via the excellent Jonathon Mott at UBS: Scenario 1 – ‘Bounce-back’: A recovery in housing lending flow (+20%) back to record levels would add 2.2% to housing credit growth (1.5% to EPSg). But this would likely give rise to a sharp bounce in house prices and household debt. Stimulatory policies would likely be reversed. Scenario
By Leith van Onselen At a press conference yesterday, RBNZ Governor, Adrian Orr, publicly lashed the New Zealand Bankers’ Association (NZBA) for claiming that taxpayers should bail the sector out in the event of a crisis, and has used these comments as justification for the RBNZ’s capital reforms. From Interest.co.nz: Orr was answering a question about
The pressure is on from the property adoring press: Experts expect the major banks to pass on most, if not all, of a one-quarter of a percentage point drop in the official cash rate to 1.25 per cent at Tuesday’s meeting, which financial markets estimate is an 86 per cent chance. “They should pass it through,” said
By Leith van Onselen The Reserve Bank of New Zealand (RBNZ) has released its latest Financial Stability Report (FSR), which explained why banks need to hold more capital: Domestically, debt levels are high in the household and dairy sectors, leaving borrowers and lenders exposed to unanticipated events. Similar challenges exist globally, given current high public
Via the AFR: The number of borrowers seeking home loans from Commonwealth Bank surged to its highest level in more than six months on the back of the Coalition’s surprise federal election win. CBA chief executive Matt Comyn said while he expects the Reserve Bank of Australia to cut the cash rate next Tuesday, a
