Macroprudential measures unlikely for Australia: S&P

Bernard Kellerman
As concern continues over household indebtedness and rising property prices in Australia, the progressive lowering of the cash rate to its current level of two per cent by the Reserve Bank of Australia has reignited a debate over macroprudential measures and their application.
 
And while a macroprudential approach has been tried by bank regulators in several countries - for instance, New Zealand and Britain - in an attempt to stem property prices and slow housing-related credit growth, in the opinion of Standard & Poor's Ratings Services, any measures adopted in Australia should focus on shoring up the nation's banks and households to absorb any fallout from a rapid fall in property prices.
 
This is consistent with the RBA's financial stability objectives.
 
"To this extent, we believe any resultant dampening in residential property price growth might be viewed as a secondary objective," said S&P.
 
The ratings agency said the strong growth in Australian residential property prices could be "partly attributed to factors other than lending practices and credit growth, including strong immigration inflows and supply constraints, and is to an extent outside of the direct reach of prudential oversight."
 
The total exposure to loans with loan-to-value ratios above 80 per cent is just under 20 per cent across the Australian residential mortgage-backed securities sector rated by S&P.

"Australian lenders typically take out lenders' mortgage insurance for loans with LTV ratio of 80 per cent or above to redistribute risk. Furthermore, RMBS with greater exposure to high LTV ratio loans typically have higher credit enhancement for senior notes to minimise losses," S&P said.
 
 From the perspective of residential mortgage-backed securities, macroprudential measures might curtail some forms of higher-risk lending at the margin and lead to a small decrease in certain product types across loan portfolios.