September 10, 2018 / 3:20 AM / 7 months ago

Australia's housing downturn unlikely to hit banking stability - central bank

SYDNEY, Sept 10 (Reuters) - A senior central bank official has downplayed the chances of a slowdown in Australia’s once-booming housing market undermining the stability of the country’s banks, saying the risk appears to be low.

Reserve Bank of Australia (RBA) Assistant Governor Michele Bullock sounded comfortable on Monday about the level of household debt and the ability of everyday Australians to keep up with rising repayments.

“Australian banks are well capitalised,” she said in a speech at Albury, a regional centre 347 kilometres (216 miles) from Canberra.

“While lending standards were not bad to begin with, they have nevertheless tightened over the past few years,” Bullock added. “Overall, arrears rates on housing loans remain very low.”

Bullock, however, said an adverse shock to the economy could see households struggling to meet repayments on their mountain of debt, which is among the the world’s highest at 190 percent of income.

Even so, Bullock said it appeared that average households had “some ability to absorb some increase in required repayments”.

Three of Australia’s four major lenders including Commonwealth Bank and Westpac hiked their mortgage rates in the past two weeks, raising fears increased debt repayments will further slow the property market and hurt consumer spending.

Subdued consumption by indebted households is one of the biggest concerns for the RBA which has held interest rates at a record low 1.50 percent since last easing in August 2016.

Bullock said some households were feeling the pressure of high debt levels and recent increases in repayments but cited several reasons the situation was not worrying.

“First, the economy is growing above trend and unemployment is coming down,” she said.

Australia’s A$1.8 trillion economy expanded at a surprisingly fast annual 3.4 percent last quarter while the jobless rate has eased to 5.3 percent.

Second, average households were far ahead on their repayments already, while a recent improvement in lending standards has boosted the quality of banks’ and households’ balance sheets, Bullock added.

“In addition, strong housing price growth in many regions over recent years will have lowered loan-to-valuation ratios for many borrowers,” she said. (Reporting by Swati Pandey; editing by Eric Meijer)

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