Moderate house price growth along with household debt, low-interest rates, limited supply of new housing stocks, and expected population growth over the next two years have led credit rating agency Standard & Poor’s to raise the ratings of the four major banks.
Though there was a threat of a sharp market correction, S&P also says that continuing strong population growth, low-interest rates, and limited stock supply can produce a strong price and household debt resurgence. Although this possibility is small, it may increase economic risks.
S&P says that Australian banks ‘ risk of loan losses by historical and international comparison was likely to remain low, but if needed the authorities would use “macroprudential tools to prevent a rapid build-up of imbalances through the recurrence of strong growth in property prices or private sector debt”. According to S&P, after lapses in their actions and risk assessment over the past two years, the banks are likely to improve their governance standards.
Regulatory oversight would become more extreme as the risks of business grew, with unregulated non-bank lenders filling gaps generated by declining investment property loans from controlled entities. Restrained growth in earnings, indicating low-interest rates, moderate credit growth and expense of consumer remediation, could also allow banks to take risks.