Sydney - Moody’s Investors Service cut the long-term credit rating of Australia’s four biggest banks, saying surging home prices, rising household debt and sluggish wage growth pose a threat to the lenders.
“Risks associated with the housing market have risen sharply in recent years,” Moody’s said in the statement. While a sharp housing downturn isn’t its core scenario, “the tail risk represented by increased household sector indebtedness becomes a material consideration in the context of the very high ratings assigned to Australian banks,” Moody’s said. The Australian dollar fell as much as 0.5 percent following the announcement, and was trading at 76.02 US cents at 6:37 p.m. Sydney time.
S&P Global Ratings last month downgraded the credit
ratings of almost all of
Residential mortgages account for more than 60 percent of the Australian banks’ loan books. The banks have recently tightened lending standards under pressure from regulators. The combination of soaring house prices and stagnant wage growth has pushed the ratio of household debt to disposable income to 189 percent one of the highest levels in the world.
“The resilience of household balance sheets and, consequently, bank portfolios to a serious economic downturn has not been tested at these levels of private sector indebtedness,” Moody’s said in the statement.