Ensure you never miss an issue of the
real estate business bulletin
Banks play with fire by reducing loan standards

Banks play with fire by reducing loan standards

by Steven Cross 0 comments

Australian banks are cutting lending standards for home loans in order to secure business in a flat market, global investment bank Credit Suisse has claimed.

As families avoid debt, leading analysts believe the banks are becoming more desperate for business and are in danger of again embracing the dangerous lending standards that led to the collapse of banks elsewhere in the financial crisis.

Experts at Credit Suisse said there is growing evidence Australia's lenders are lowering their standards as "revenue pressures" mount.

In a note to investors, Credit Suisse analysts said it appeared banks were holding on to mortgage credit risk rather than turning to specialist insurers to offload the risk.

"Our industry liaison suggests that this process is starting to occur," said the group's banking team, led by Jarrod Martin.

Mr Martin said lending standards had not yet slackened to the extent seen in the pre-crisis era, however it could be heading in that direction.

"Banks do not become better at credit risk management so much, but rather get better at fighting the last war. Institutional memory and lessons from previous credit cycles inevitably fade," he said.

The analysts said banks were more consumed with defending current margins than addressing growing risks in the financial system.

"Financial systems and products evolve in new ways ... And banks 'find' new ways to lose money."

In the note, Credit Suisse analysts said there were no indications of a looming mortgage arrears crisis.

It noted the Reserve Bank has warned that lenders, including the big four, last year started giving mortgages to borrowers with deposits of just five per cent.

Banks play with fire by reducing loan standards
lawyersweekly logo
promoted content
Recommended by Spike Native Network
Listen to other installment of the Real Estate Business Podcast
reb top 100 agents 2017

The REB Top 100 Agents ranking is the foremost ranking of agents in Australia. It has set the bar for excellence in Australian real estate. To be ranked as an REB Top 100 Agent is the standard real estate professionals strive for. See the full 2018 ranking here!

featured podcast

featured podcast
The difference between an average agent and one who dominates

McGrath Crows Nest’s Peter Chauncy is number 10 in this year’s REB Top 100 Agents ranking. Peter, however, is more likely not surprised ...

View all podcasts

Would you consider working for Purplebricks or a similar 'DIY' model?

Yes (7.2%)
No (80.9%)
Perhaps - make me an offer (12%)

Total votes: 209
The voting for this poll has ended on: July 13, 2018
Do you have an industry update?