According to the latest quarterly property exposure statistics from the Australian Prudential Regulation Authority (APRA), the banking sector collectively settled $94.9 billion in mortgages in the three months to 31 March 2020, up 20.1 per cent from $79 billion in the previous corresponding period.
The improvement was driven by a surge in owner-occupied lending, with volumes rising by approximately $10.4 billion, from $54.1 billion to $64.5 billion over the same period.
Investor volumes also increased, up by approximately $5.2 billion, from $22.7 billion to $27.9 billion.
External refinancers made up just approximately 37 per cent of new loans settled, with the value of refinancing volumes up 24 per cent to $35.2 billion.
This coincided with a sharp fall in mortgage rates, from a weighted average of 4.2 per cent in the March quarter of 2019 to a weighted average of 3.1 per cent, reflecting five 25 bps cuts to the official cash rate from the Reserve Bank of Australia.
However, the surge in home lending volumes did not translate to an improvement in the banking sector’s underlying financial position.
APRA’s latest quarterly authorised deposit-taking institutions (ADI) statistics have revealed that over the same period, the banks collectively recorded a 14.1 per cent decline in their combined net profit after tax, from $34.3 billion as at 31 March 2019 to $29.4 billion.
An 18.1 per cent increase in capital provisions contributed to the earnings decline, with total provisions rising from $12.4 billion to $14.6 billion.
The banks were largely unimpeded by the COVID-19 crisis over the three months to 31 March 2020, with market volatility and a plunge in consumer sentiment triggered by lockdown measures imposed in the tail end of the quarter.
Analysts are expecting the COVID-19 crisis to both dampen credit growth and undermine the banks’ financial position over the coming quarters amid a spike in the unemployment rate.
In recent months, the big four banks alone have set aside over $7.2 billion in credit provisions in anticipation of a COVID-induced deterioration in credit quality.
S&P Global Ratings has reported that it is forecasting an 85 bps increase in credit losses across the Australian banking sector’s loan portfolio in the 2020 financial year (FY20).
The 85 bps increase, which is expected to moderate to 50 bps in 2021, amounts to approximately $29 billion in gross loans, nearly six times higher than the record low in FY19.