Moody's cuts Aussie banks' ratings on housing risks

SYDNEY • Moody's Investors Service cut the long-term credit rating of Australia's four biggest banks, saying surging home prices, rising household debt and sluggish wage growth pose a threat to the lenders.

Australia And New Zealand Banking Group, Commonwealth Bank of Australia, National Australia Bank and Westpac Banking were all downgraded to Aa3 from Aa2, Moody's said in a statement released yesterday.

"Risks associated with the housing market have risen sharply in recent years," Moody's said in the statement.

While a sharp housing downturn is not its core scenario, "the tail risk represented by increased household-sector indebtedness becomes a material consideration in the context of the very high ratings assigned to Australian banks", Moody's said.

The Australian dollar fell as much as 0.5 per cent following the announcement, and was trading at 76.02 US cents at 4.37pm Singapore time.

S&P Global Ratings last month downgraded the credit ratings of almost all of Australia's financial institutions on similar concerns about the risks of a property market downturn.

However, it spared the four biggest banks on the expectation of government support in the event of a crisis.

Residential mortgages account for more than 60 per cent of the Australian banks' loan books.

The banks have recently tightened lending standards under pressure from regulators.

The combination of soaring house prices and stagnant wage growth has pushed the ratio of household debt to disposable income to 189 per cent - one of the highest levels in the world.

The Australian government has taken steps in recent months to cool the red-hot property market amid concerns that speculation in housing could ultimately hurt consumers, banks and the economy.

House prices in Sydney and Melbourne have more than doubled since 2009.

BLOOMBERG, REUTERS

A version of this article appeared in the print edition of The Straits Times on June 20, 2017, with the headline 'Moody's cuts Aussie banks' ratings on housing risks'. Print Edition | Subscribe