Housing imbalances still exposing banks to risk: S&P

In Standard and Poor’s (S&P) Australian banking sector update, the credit ratings agency stated that banks are at risk due to continually high house prices and private sector borrowing levels in proportion to GDSP (Gross Domestic State Product).

S&P Global Ratings director Sharad Jain stood by the agency’s past decision to downgrade the banks as “imbalances remain elevated”.

“Until this imbalance significantly rewinds, we believe that the banking sector remains exposed to the heightened risk of a sharp correction as well as the impact that the correction will have on the banking system,” the director said.

Mr Jain noted, however, that Australian banks are at “low risk” in comparison to overseas lenders.

“The Australian banking system remains at a low risk compared to the global banking system,” Mr Jain said.

Further, S&P claimed that the Australian banking sector is “comfortably placed” to meet increased regulatory capital and the net stable funding rate (NSFR). It also reported that macro-prudential measures imposed by the Australian Prudential Regulation Authority (APRA) are contributing to a correction in house prices.

“Banks are now restricted from lending on some level,” Mr Jain said.

“The expectation is that it [regulations] will pull down the prices.”

The ratings agency added that operating outcomes were “solid” and “in line with expectations”.

[Related: Australian housing ‘frenzy’ is over: Bloomberg]