Macroprudential policy would knock one per cent off big bank earnings

The introduction of macroprudential policy to slow growth in parts of the residential property market could result in a decline in credit growth of as much as seven per cent and a one per cent fall in big bank earnings, according to new banking research.

While the central bank and the banking regulator have not committed to introduce macroprudential policy, there has been plenty of speculation they will take steps to rein in lending to property investors and possibly foreign buyers as well.

Macquarie Securities looked at the impact of such policies in New Zealand (where loan to valuation ratio limits were imposed), Sweden (LVR limits). Norway (a higher serviceability buffer), Canada (LVR limits and a minimum serviceability buffer) and Singapore (caps on loan tenure and a foreign buyer stamp duty).

Macquarie said credit growth had declined by as little as 0.5 per cent and as much as seven per cent in those markets after macroprudential policies were introduced.

Assuming such policy tools are used in the Australian market, Macquarie has developed a scenario where investor credit growth (which currently accounts for about 40 per cent of new housing finance) falls three per cent. This would result in an average one per cent fall in net profit among the big banks.

Macquarie said Westpac was the most exposed to the property investor market, with investor lending accounting for 44 per cent of its mortgage book. Thirty-four per cent of CBA's book is investor ending, 29 per cent of ANZ's and 28 per cent of NAB's.

Westpac also has the greatest exposure to the New South Wales property investor market, where the concern about overheating real estate prices is focused.

Macquarie is expecting ANZ to report a net profit of A$6.9 billion (up from $6.3 billion), when it releases its 2013/14 financial report this week.

It expects Westpac to report a net profit of $7.5 billion (up from $6.8 billion).

And it expects NAB to report a net profit of $4.9 billion (down from $5.4 billion). NAB has already announced a $964 provision relating to UK conduct charges.