Bank Earnings At Risk As Housing Market Cools

Getty/David Rogers

The banks have been raking in the money over the past year with huge profits. But analysis from investment bank UBS highlighted in an article in the SMH this morning says that 95% of all new loans since mid-2012 has gone into property – residential and a little bit of commercial.

The research by banking analyst Jonathan Mott found that of the total increase in credit since mid-2012, $60.6 billion had financed owner-occupied housing, $45.8 billion residential investment properties, and $10 billion had gone into commercial property.

Non-property business lending rose by just $3.2 billion, accounting for only 2.6 per cent of total credit growth over the period.

So as the housing market cools, as building approvals falls (especially non-residential) the banks are potentially exposed to a loss of earnings in the quarters ahead as lending is also likely to slow.

If lending, especially new lending, slows then not only will the banks earnings be under pressure but also their stellar dividend payouts to investors. APRA has made it clear that it is only earnings from which banks can pay dividends, given where it wants their capital positions to be, so bank valuation may start to look a little rich.

It’s early days in the post-budget economic swoon but the headwinds are growing for Australia’s banks.

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