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Regulatory Reinforcements Loom To Allay Runaway Housing Risks For Australian Banks, Says Report

SYDNEY (S&P Global Ratings) Oct. 25, 2021--Housing risk in Australia is intensifying as reflected in big increases in house prices, home lending growth, and higher debt-to-income lending. The regulator's initial measures to increase lending buffers and rein in risk will have a limited impact, and further macroprudential measures will follow.

That's according to a report published today by S&P Global Ratings titled "Regulatory Reinforcements Loom To Allay Runaway Housing Risks For Australian Banks."

"Soaring house prices in Australia are no longer just a problem for frustrated home buyers. Higher prices, home lending growth, and higher household debt present systemic risks for Australian banks," said S&P Global Ratings credit analyst Nico DeLange.

"The regulator, the Australian Prudential Regulation Authority (APRA), has sought to mitigate these risks by introducing macroprudential measures. The announced measures will have limited impact, in our view. Consequently, we expect more regulatory actions on this front in the next few months," Mr. DeLange said.

We believe rising house prices and accelerating home loan growth typically lead to a buildup of risk for a banking system. Residential mortgages account for almost two-thirds of bank lending in Australia. If house prices plunge and unemployment rises, bank customers will be less able to service loans. This could lead to a material rise in credit losses, and consequently hurt the creditworthiness of the entire banking sector. These risks are accentuated when property prices and household debt have risen rapidly.

Our current ratings on Australian banks--most of which are on positive outlook--factor in our expectation that the regulators will take timely and effective actions to mitigate risks from rapidly rising house prices and home loan growth. Failing this, the upside for our ratings on the Australian banks is likely to recede.

This report does not constitute a rating action.

AUSTRALIA

S&P Global Ratings Australia Pty Ltd holds Australian financial services license number 337565 under the Corporations Act 2001. S&P Global Ratings' credit ratings and related research are not intended for and must not be distributed to any person in Australia other than a wholesale client (as defined in Chapter 7 of the Corporations Act).

The report is available to subscribers of RatingsDirect at www.capitaliq.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to research_request@spglobal.com. Ratings information can also be found on S&P Global Ratings' public website by using the Ratings search box located in the left column at www.standardandpoors.com. Members of the media may request a copy of this report by contacting the media representative provided.

Primary Credit Analyst:Nico N DeLange, Sydney + 61 2 9255 9887;
nico.delange@spglobal.com
Secondary Contacts:Sharad Jain, Melbourne + 61 3 9631 2077;
sharad.jain@spglobal.com
Lisa Barrett, Melbourne + 61 3 9631 2081;
lisa.barrett@spglobal.com

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