Despite the stable growth trends in some of the big four banks, trends in the national property market could see further macroprudential action by the Australian Prudential Regulation Authority (APRA).
In a Morningstar research note looking at the Commonwealth Bank of Australia (CBA), analysts predicted that the “overheating housing market” is likely to force APRA to once more slow the growth of investment lending.
“Likely action, known as macroprudential controls, include the reduction in the current 10% annual growth limit on residential lending to something around 5%-7%.
“Other less likely steps could be raising the minimum loan serviceability buffer to 3% from 2% and lifting the risk-weighted capital floor for new residential investor borrowers holding multiple properties to 75%-100%.”
At present, CBA applies a 7.25% rate to new home loan applicants to determine serviceability. This is 2.25% above the current customer rate.
Analysts said that while APRA does not publicly disclose individual bank capital requirements, it does and could “impose tougher measures on individual banks” if residential investor lending is growing at a rate deemed too risky.
While the 10% cap was introduced in December 2011, it only started to gain traction after peaking at 10.8% in June 2015 and falling to a low of 4.6% in August 2016. Since then however, growth rates have trended upwards, hitting 6.6% as of 31 January 2017.
Despite some concerns about the property market, analysts said the big four banks were “well placed to handle a modest decline in dwelling prices”.
“We believe an extended period of stable house prices or even a modest decline would be good for the housing market and reduce some of the pressure on capital city buyers and lenders.”
While historically, a period of flat house prices for five or seven years is normally expected after strong growth, analysts admitted being in “uncharted waters” with interest rates being at record lows.
Looking at CBA, Morningstar expected the bank to continue growing its home loan portfolio, albeit at a slower rate than before.
“We expect this strong growth rate to moderate during calendar 2017 and we forecast group home loan balances outstanding to grow an average of 5.5% per year from fiscal 2018-2021.”
