Portfolio run-off
Westpac released its FY19 results this morning, which confirmed tough times ahead for bank profitability...and, for investors, a threat to their dividend streams.
The investor preso included some interesting detail, including a slide showing how mortgage run-off has outpaced new loan flows of late, in turn helping to explain low housing credit growth despite a rebound in the housing market.
There was a cheekily arranged slide on the interest-only (IO) reset, which reported IO arrears as lower than loan arrears for P&I (which is exactly what you'd expect, when you think about it, although in truth delinquencies for all loan types were fairly benign).
Perhaps Westpac was also making the point that IO loans aren't as risky as they are often made out to be, so should be allowed to flow again - they are, after all, certainly a boon for the bank's bottom line.
More tellingly, the enormous reduction in the IO portfolio mix continued apace, which alongside faster repayment of debt is sucking ever more dollars out of the Aussie economy.
Westpac reported an improvement in arrears over the past two months - with only Western Australia above 1 per cent for 90-plus day delinquencies - while the scheduled IO expiry profile is no longer abnormal (nor is there a mechanical reset).
Overall, the arrears figures were quite positive.
The bigger short-term challenge will be the hit to consumption as more and more borrowers repay debt.
The IO cliff didn't lead to a housing bust or the widely tipped 'rush for the exits' - in fact new listings have been running at decade lows - but it has helped to precipitate a retail recession.
The IO cliff didn't lead to a housing bust or the widely tipped 'rush for the exits' - in fact new listings have been running at decade lows - but it has helped to precipitate a retail recession.
Retail atrophy
The AFR headline this morning read that interest rates would remain on hold as strong retail sales were expected.
Well, the retail figures for Q3 were, in a word, atrocious.
Retail volumes for the quarter were actually negative in seasonally adjusted terms, and even the year-on-year trend for volumes is now awful and at levels only associated with recessions and crises.
I tried looking for some bright spots at the industry and state level for the month, but there weren't many.
Only Queensland showed remotely reasonable figures.
Only Queensland showed remotely reasonable figures.
You can see the detailed analysis via James Foster here, with department stores in negative territory again in September.
Overall, this does not bode well for consumption in the national accounts.
