A leading regional bank has admitted de-risking its loan book by reducing its exposure to the booming Sydney and Melbourne housing markets.
Bank of Queensland chairman Roger Davis revealed the bank’s “strict credit standards” involve fewer loans being written for properties in Sydney and Melbourne.
Speaking at the bank’s annual general meeting last week, Mr Davis said Bank of Queensland’s “strong risk policies” involved reducing its property exposure in riskier areas where growth has been the highest.
“We are comfortable with the Bank’s existing housing exposure given our strict credit standards, strong risk policies and our increasingly diversified portfolio which remains underweight in the Sydney and Melbourne markets where growth has been the highest,” he said.
While there are record property prices in certain suburbs and property types in Sydney and Melbourne, the balance of the nation is not experiencing such boom conditions, Mr Davis said, noting the “stark divergences across the major cities and regional areas”.
“Certainly the national average is distorted by low interest rates and particularly strong growth in the Sydney market where there are inherent supply/demand imbalances in housing,” he said.
“Strong investment demand, in Sydney for instance, has seen housing prices (including those of investment properties), increase by about 14 per cent year on year since the start of the current cycle in June 2012 and by 21 per cent since the prior cycle's peak in October 2010.
“These are large increases but are confined to one market only.
“Melbourne housing prices have increased 8 per cent year on year over the same period and are only 6 per cent up from the previous peak while, closer to home,
Brisbane housing prices are up around 6 per cent year on year but are still 4 per cent below the previous cyclical peak.
“When coupled with low system growth, these trends – despite local abnormalities – suggest there is not a national housing bubble and certainly not in any of the markets where we participate in a major way.”
Mr Davis warned APRA and the RBA about implementing lending curbs that could unintentionally restrain the recovery of property markets other than Sydney and Melbourne.