Australia’s banking regulator said there is no cause for concern regarding the pockets of stress which have been observed in the nation’s housing market ramping up and becoming more widespread.
John Lonsdale, Australian Prudential Regulation Authority (APRA) Chair, speaking at the Citi Australia & New Zealand Investment Conference in Sydney on Thursday, said, “We haven’t seen systemic stress at this point.”
He said the banking system’s overall fundamentals are “very strong” despite “pockets of stress” found among borrowers. Regardless, he said that the sacrifices people have been forced to make due to the cost of living pressures which have built up are not fully captured in the data.
Last week, the central bank said that there was a small but growing group of borrowers who are just beginning to experience the early stages of financial stress. In September, as demand continued to remain strong, home prices remained well supported.
Lonsdale said that the APRA was closely monitoring the data on borrowers whose lower, fixed rate mortgages will be moving to higher variable rates over the next 12 months. The Reserve Bank of Australia (RBA) said that household mortgage payments have risen from about 7% of disposable income in May of last year, up to roughly 10% of disposable income, since the RBA began hiking rates.
Lonsdale said, “There is definitely stress in the community and we need to be very aware of that.”
APRA said it feels the 3% serviceability buffer which banks need to apply, in addition to the existing mortgage rate, in order to judge the ability of domestic borrowers to meet repayments is proper, given current conditions.
At the same time, Lonsdale said that in the wake of the turmoil in the banking sector overseas, 11 Australian banks have passed their stress testing with ease. The full results will be published early next year, he said. He noted the testing was for a “severe scenario” of high inflation, 10% unemployment, and a decline of home prices of more than a third.
Lonsdale went on to say, “What I can tell you now is that no banks breached their prudential requirements on capital, all retained sufficient liquidity and banks continued to provide credit to households and businesses.” He added that although it was just a hypothetical exercise, the results should give the public confidence in the resilience of the Australian banking system.
