Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Friday, 19 February 2016

Risk environment

The evolving risk environment

Malcolm Edey, Assistant Governor at the Reserve Bank of Australia (RBA), spoke on risk and the evolving risk environment yesterday.

He lamented that market and media commentary often errs on the side of beijng unjustifiably gloomy.

Very true.

Spcifically on the residential property market, Edey noted that household debt has edged up again, to around 1.5 times household income, although as the RBA has pointed out before, after accounting for record mortgage buffers and offsets, the debt-to-income ratio has barely shifted in a decade.

As we know, lending standards have been higher since the financial crisis, and APRA has tightened criteria again within the past year, particularly with regards to judgments applied to the reliability of borrowers' incomes.

While plans are now in place to cap the growth in investor lending at 10 per cent, the rate of growth has already fallen very sharply towards 5 per cent, particularly lending with a loan-to-value ratio (LVR) of greater than 90 per cent.

From a global perspective, non-performing loans have been declining in Europe, and indeed, they have been declining as a percentage share of loans in most developed economies.

Graph 1: Large Banks' Non-performing Loans

Full transcript here