Nobel Finance Sydney – Money Matters Newsfeed

Australia’s major banks continue to perform well despite ongoing funding challenges, according to Fitch Ratings.

Fitch director Tim Roche said despite some deterioration, Australian bank asset quality remains sound.

“It is one of the main reasons why the major banks have retained access to wholesale funding markets during the crisis,” he said.

Nevertheless, Mr Roche said the banks’ reliance on offshore wholesale funding means they remain vulnerable to future disruptions in global markets.

Fitch expects asset quality deterioration to continue to moderate through the remainder of 2010 and into 2011, barring a significant weakening in the global economic recovery.

At the same time, a sharp rise in house prices over the past year may indicate a level of overheating in the housing market; however underwriting standards appear sound, with banks having tightened them since 2007.

Furthermore, the risk of material loss from the mortgage portfolios is largely mitigated through the use of lenders’ mortgage insurance.

Fitch’s long term IDR outlook for ANZ is ‘positive’ with a AA- rating, while CBA, NAB and Westpac have a ‘stable’ outlook, with a AA rating.

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Homesafe Solutions has welcomed the stamp duty relief for seniors announced as part of the NSW Budget.
The equity release provider described it as an innovative public-policy response to the challenge posed by an ageing population. Peter Szabo, managing director of Homesafe, said: “Retirees should be aware that equity release products can provide them with the financial means to maintain their independence and current lifestyle, without the need to downsize their home. Many seniors have inadequate retirement savings to enable them to enjoy quality of life during their retirement. Equity release products provide a valuable alternative to selling off the family home while providing retirement income.”

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Australia is not in the middle of a housing bubble according to the Real Estate Institute of Australia (REIA), contrary to recent comments by global investment management firm GMO’s chief strategist Jeremy Grantham.
REIA president. David Airey said: “What we are experiencing in the housing market is normal growth for house prices. If Australia was in the midst of a so-called housing bubble, then we have been there for some time. REIA’s data highlights that historically, median prices, compared to income, have been relatively stable for the past 10 years, taking into account normal fluctuations.”
According to the REIA over the period December 1996 to December 2009, median house prices increased from around $160.000 to around $500,000, a trebling in 13 years. But within this period there were four phases.
From December 1996 to September 2000. median house prices in Australia showed a moderate average growth of 2.1% per quarter. From December 2000 to December 2003. house prices appreciated at 3.9% per quarter on average. Then from March 2004 to December ?008, the average growth slowed to 0.8% per quarter. During 2009, growth of median house )rites picked up pace to 2.9% per quarter.

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The number of dwelling commencements rose slightly in the March 2010 quarter, the Housing Industry Association (HIA) has revealed. HIA chief economist Harley Dale said that total housing starts increased by 4.3% in the first quarter of 2010 to an annualised level of nearly 170,000. HIA’s forecast was for a 4% rise. He added: “There was a strong burst in ‘other dwelling’ starts in the March 2010 quarter… The strong run up in building approvals through to early 2010 is not translating into new home starts as quickly as is desirable.”
Harley cited “unjustifiably tight credit conditions”, uncertainty about the magnitude of rate rises in 2010 and some approvals simply being reissued with no firm plan for commencement as reasons for a soft first quarter update for new home building.
The HIA continues to expect a relatively healthy rise in housing starts in the 2009/10 financial year, but claimed a positive outlook for 2010/11 and beyond is far from assured amid supply-side obstacles.

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Australian banks could survive an economic contraction the size of the 1990s recession, the Australian Prudential Regulation Authority (APRA) has revealed. According to reports, APRA chairman John Laker ordered a stress test to be conducted to determine what would happen if there was a three? year deterioration in global economic conditions. The
Reserve Bank of Australia and New Zealand’s central bank also took part in the examination. Laker told The Australian Financial Review the results showed Australian banks had the capital resources to weather such a contraction. In fact, none of the 20 banks tested would have failed or even fallen below the minimum amount of top?rated assets on their balance sheets. However, he warned banks not to get complacent and take part in the high-risk activities that caused the economic downturn overseas.

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