DEUTSCHE: Australia’s major banks have $39 billion in exposure to housing development

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After a solid run higher last week, the major banks are under pressure again today.

No doubt that’s a reflection that the banking sector globally will retain a negative tone while the risk of energy sector bankruptcies remain high following OPEC’s failure to do a deal with other major producers in Doha on the weekend.

But equally, the focus could be on potential issues for the majors closer to home.

On Friday, in its latest Financial Stability Review, the RBA warned there was a growing fragility among Australia’s property development ranks. Banking regulator APRA has clamped down on lending for investment property purchases which, while they had “generally enhanced resilience in the household sector”, means there is a growing risk of overhang in apartment developments yet to be completed.

“Tighter access to credit for households could pose near-term challenges in some medium- and high-density construction markets given the large volume of building activity that was started several years ago,” the RBA said in the FSR.

So, against this backdrop, Deutsche Bank Australia analysts Andrew Triggs and Anthony Hoo said in a note over the weekend that:

The majors collectively have $39bn in residential property development exposures according to APRA data, which we estimate is ~1% of total group exposures. While this is small in the scheme of things, this segment has seen strong growth of 22% over the year to Dec 2015, and a significant weakening in conditions would present concerns.

It’s just another potential battlefront that Australia’s millions of bank investors have to worry about in what is an increasingly complicated, competitive, uncertain, and dangerous economic and regulatory environment.