APRA published its quarterly data on authorised deposit-taking institutions (ADIs) on Tuesday (7 September), revealing that a bullish housing market and a strong economic recovery in the quarter had pushed gross loans and advances across the ADIs up by 1.9 per cent over the June quarter, to $3.5 trillion.
Total outstanding credit for residential mortgages hit $1.9 trillion in June, 4.7 per cent more than a year prior. Owner-occupied loans were the bulk, talking up 65.2 per cent of the combined books and equating to $1.2 trillion, up by 8.7 per cent than the year before.
While the proportion of owner-occupied loans grew by 2 percentage points, investor loans slipped by 1.7 percentage points, down to 32.4 per cent of the total.
Investor loans sat at $613.3 billion, a slight yearly increase of 0.1 per cent.
However, the growth took place prior to the current wave of COVID-19 restrictions, brought on by the delta outbreak in Sydney.
“Industry profitability improved over the past year, while no-performing loans broadly stable,” APRA stated.
“However, the outlook appears uncertain, given the challenges currently faced by the industry from the delta variant of COVID-19 and ongoing lockdowns. Government stimulus and APRA’s second round of concessionary treatment for loan repayment deferrals should provide some support.”
There had been a 40.5 per cent surge in new residential mortgage loans funded during the June quarter, up to $156.2 billion – although in the same period a year prior, the effects of the pandemic had begun to unfold in Australia.
Of the new loans secured in the June 2021 quarter, 70.6 per cent had been owner-occupied and 27.8 per cent were investor loans. There had been a 1.5 percentage point rise in owner-occupied lending from a year prior, compared to a 1.4 percentage point drop for investors.
However, APRA also noted a 5.8 percentage point rise in loans with a high debt-to-income ratio (six times or more), up to 21.9 per cent.
The movement was “continuing to be influenced by the low interest rate environment and increasing house prices”, the regulator noted.
At the same time, other measures of higher risk-residential mortgage lending fell, including the share of lending with high loan-to-valuation ratios (down by 0.6 percentage points to 8.6 per cent).
“Key measures of asset quality remain strong, although this may be impacted by recent lockdowns and the expected impact on borrower’s ability to service their loans,” APRA said.
Total assets across the banks, building societies and credit unions rose by 3.4 per cent over the June quarter, to $5.4 trillion, as there was a $136.8 billion boost in cash and liquid assets.
Total deposits also hit a new historic high of $3.4 trillion, as at 30 June.
Meanwhile, net profit after tax (NPAT) across ADIs rose by 23.5 per cent from the year before, to $32.3 billion in financial year 2021, as the banks all released provisions for bad loans.
There had been a $10.4 billion reduction in charges for bad or doubtful debts, with the banks acting to reflect a better-than-previously-expected economic outlook.
Impaired assets and past due items across ADIs were down by 4 per cent year-on-year to $37.5 billion.
The banks’ cost-to-income ratio had also declined to 54.6 per cent for the year, from 56.1 per cent in the prior year, as operating expenses took a steeper fall (down 3.2 per cent) compared to operating income (down by 0.6 per cent).
The number of ADIs had also dropped during the June quarter, with three banks having their licences revoked: Investec Bank, Firefighters & Affiliates Credit Co-operative (which had been bought by Teachers Mutual Bank Ltd) and Lysaght Credit Union.
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Sarah Simpkins is the news editor across Mortgage Business and The Adviser.
Previously, she reported on banking, financial services and wealth for InvestorDaily and ifa.