Australia’s banks on shaky ground: ABC, The Business

April 14, 2015 admin Australian Economy, Australian Housing, Banking Regulation, Monetary Policy 22

The ABC has tonight delivered its second instalment on Australia’s housing bubble, the brewing banking crisis and tomorrow night – what the regulators are doing to try to limit the catastrophic damage.

You can watch tonight’s segment here – Is 1.6 trillion dollars in housing loans too hot too handle?

The ABC says there is good reasons to be wary of our banks $1.6 trillion exposure to Australia’s hot property sector with the banks borrowing a lot of money from foreigners with the backing of their mortgage portfolios.

As we reported back in November last year, (‘Have the Big 4 just flunked APRA’s stress test?‘) Australia’s banks are super profitable, but it comes about from flouting their privilege in calculating their own risk ratings. (‘Australian banks not the safest in the world – far from it‘)

Brian Johnson, a Banking analyst with CLSA told the ABC tonight, any sort of self assessment is fought with danger, “I’ve been a bank analyst for a long time and I’ve never ever seen a bank accurately forecast that there would ever be a problem anywhere.”

We reported in November last year, Westpac only believes 15 percent of its residential mortgages are at risk, the lowest risk rating of any of the banks. The big 4 banks have been cutting their risk ratings so fine to reduce the amount of loss adsorbing capital they need to hold, all in a bid to increase super profits and out do each other.

The ABC reported tonight, the OECD is recommending regulators, such as Australia’s banking regulator APRA, should no longer accept the banks own risk assessments of their own mortgage portfolios. Australian banks are now holding less capital than before the GFC hit, due to their watered down risk ratings.

A lack of capital underpinning the banking system could raise its ugly head if our over-extended property market begins to level off.

Both Martin North of Digital Finance Analytics & Brian Johnson is concerned with the behaviour of the irrational negative gearing investor with interest only loans. Currently they lose money, week after week, though poor rental returns but with the hope of big capital gains when they sell. If the unsustainable and overheated property market were to level off, or start falling, all these investors could head too the exits at the same time.

Australia is only one of three countries with negative gearing on residential property and a housing correction of the size we now face has never been tested before.

Tomorrow night the ABC will examine what (little) regulators are doing in trying to contain the situation.

» Australian banks not the safest in the world – far from it – Who Crash the Economy?, 8th December 2015.
» Have the Big 4 just flunked APRA’s stress test? – Who Crashed the Economy?, 16th November 2014.
» Too big to fail – Who Crashed the Economy?, 18th November 2012.
» Is 1.6 trillion dollars in housing loans too hot too handle? – The ABC, 14th April 2015.
» Australian banks’ mortgage concentration worries analysts – The ABC, 14th April 2015.




22 Comments

  1. So refreshing to see the ABC do some real business reporting that the rest of the lapdog press won’t touch. The truth needed to be told despite the vested interests of the banking and RE industry. Now just wait for the backlash as the government tries to further cut back their funding in retaliation.

  2. Banks deliberately taking risks with biggest asset bubble in history looks like match fixing. End goal of ‘masters’ seems to enslave the majority & cripple this economy. One, sudden international ‘big event’ will bring all these greedy speculators to head to the exits at the same time. Also, it seems too late to test the housing correction of the size we now face.

  3. The ABC has now publicly exposed the ugly face of financial terrorism as the banks get set to implode the economy and themselves with the promise of a nirvana afterlife provided by the taxpayer. The enemy of our way of life is not in Iraq but right here with branches in every shopping centre.

  4. They can’t contain the situation, its too late. The way the economy is structured, any action to reduce this risk will hurt other aspects of the economy. They have had a long time to deal with this but too many people in positions of power were benefiting in the short term to warrant looking at the long term risks. The media is still saying the market needs to be propped up with more investment. It was only a couple of months back the treasurer wanted to allow people to use their super to buy a house. These guys have absolutely no idea what they are doing. It is the typical high risk economics you see in the private sector to get large profits. A country is not a private company meant to make profit for those at the top.

  5. It’s ashame that when our ABC reports such issues, the majority of the population are watching ‘The Block’ or ‘Location,Location,Location’.

  6. Excellent news. I sincerely hope the financial institutions go bankrupt and fail. It has happened before and the new financial institutions that arose were much more responsible. Today, with government guarantees, banking institutions are drunk with financial mismanagement and corruption. The present financial world, RBA included, is nothing more than a minority of very powerful and wealthy people that is protected by a government that has no mandate by the Australian people, to protect this same group, at our expense. The whole government apparatus and laws are in place To make sure this group becomes even more wealthy. This is what the voter approves come elections time. Let them fail, our savings are government guaranteed anyway and let the government open its own Bank like it had in the past with the exception that whatever loans it gives out is based on the gold equivalent.

  7. Vino what have the banks got to lose absolutely nothing. They have the RBA who have the taxpayers to bail all of them out. Makes me freaking sick………. The sad part is the govt is standing there doing nothing about it. Very sad.

  8. Good grief! Watch the ABC segment, “Is 1.6 trillion dollars in housing loans too hot too handle? – The ABC, 14th April 2015.”

    Hear what that Deloitte banking partner had to say, “Many investors today are actually first home buyers, who simply choose the investment path, as the path to take out their first home property, rather than being a home owner occupier”.

    So in-conjunction with many negative gearers acquiring interest only loans, banks holding a $1.6 trillion in exposure to properties, banks lending to GDP is 77% for Australian households, and they’ve [the banks] have borrowed offshore. We have first home buyers, not having a good enough salary (or spending it if they do) to save the required deposit to be able to live in the first home they buy, sometimes borrowing from Mum & Dad for a deposit, taking from their salary to top up rental revenue to make the mortgage payments (strata fees, water, and repairs too), maybe living with Mum & Dad (nothing wrong with that, family is cool), or living with Mum & Dad in-law (maybe a problem). For the sake of all that is holy, it has to be crystal clear now why property prices are in Pluto’s orbit.

    People are doing this with the belief that one day they will have the capital to buy better, retire early, or have additional income later on in life? I reckon about 4% will end up that way. The rest are shafting themselves.

    Its’ not supply contraits causing this, not hot Chinese money, it is people of Australia doing this. Yes, the first two (supply & foreign money) play their part, the true reason is stupidity on masse. Yes there is a supply contraint, it is an over-supply of stupidy moving in a large group.

    Good on the ABC for this, somebody needs to start talking about it.

  11. 7pc growth in ten years is a massive loss for an investor. Experience tells me you would need 20-30 pc over ten years to stay even……Pathetic effort at a spruik.

  12. Interestingly 1.6 trillion is around $70k for every man woman and child in Australia.
    That sounds much scarier than a single huge number than many cant get their head around.

  13. So which banks then are the safest for us prudent people to store our cash…anyone applied research to this? I’m guessing target those with smallest loans into domestic property, then those with smaller deposit bases (so the 30 billion limit will cover any bailout).

    It is scary to think I could lose all my hard saved cash due to irresponsible banks and greedy speculators.

  14. This particular article is of interest to everyone. It depicts the logic of Abbotts and his view of how abolishing negative gearing is an excuse for a tax increase of which he says he will not hear of it. This is coming from a person who is considering increasing the GST. What a hypocrite!!! Is it not obvious he has many vested interests to protect or not? To those who do vote, you should be proud of them.

    http://www.theguardian.com/australia-news/2015/apr/16/negative-gearing-reforms-could-save-taxpayers-1bn-in-two-years-says-acoss

  15. Australia with its debt at 250% of debt to GDP will have a real problem soon. Anyone watch Hockey (Bungle) in the US?

  18. What is going on out there? It seems the media is throwing out everything at once to test if the mass of Australians will show absolutly any reaction to the state of their catastrophic situation. Negative gearing has been attacked now multiple times and has been repeatedly discussed over the past few weeks. Tony Abott rejected and defendet NG and maybe rocking the boat even more, who knows. The banks financial vurnabilty is exposed. And even the RBA dilemma showcased.

    Is this Australia’s Black Swan moment when everything turns to shit? It’s like now or never. Will Australians wake up finally? If not then they are truly the dumbest inhabitants of this planet earth and the Pollies and Bankers know, no matter how much information is supplied, the mass of people will simply not react to it and politicians will play the game to the tune of the banks, knowing that there is no ramification to their ill doing.

  19. Abbott has also decided to cut benefits of up to $15K per child for parents who do not want not vaccinate their children, so he’s also in the pocket of Big Pharma.

    This is basically giving lower income families no choice but to vaccinate their kids in order to survive financially.

    Whether you are pro or anti vaccine the direction of where the govt. is heading with this decision should be very alarming.

  20. @19 Sky

    I totally agree: I am FOR vaccination, but

    It is the role of a CONSERVATIVE government to allow the people to make their own decisions of how to live: This flies in the face of every thing the conservative parties stand for: Abbott is such a disappointment. Hockey also.

  22. Well, there is no one to blame but ourselves at the end of the day. Engaging in the type of social security system we have today naturally breeds “rulers” (not servants) who seek power, authority and all of the perks that come with such a position of power. We once had true public servants or “Statesmen” instead of politicians, but this requires that we engage in a more godly type of social welfare system.

    Originally, social welfare was NEVER intended to be the prerogative of State Institutions or government, it was meant to be a voluntary system supported through free will voluntary donations (what the bible calls “burnt offerings” – funds that are given up entirely with no strings attached so that ministers who are actually public servants could provide it to the genuine and deserving needy). If these ministers did NOT do a good job, you could dump them instantly and select someone more responsible. Information about this system which all Western countries started out with is now deliberately withheld from the general and now very ignorant public.

    The system we have today through most of the Western World will eventually implode upon itself – collapse under its own weight (it always has every other time it was used such as in later Roman Empire, early Babylon, Egypt etc).

    Engaging in this ungodly form of social security/welfare is also why we had to throw out the real gold-backed honest money system and replace it with fiat plastic/polymer garbage “notes” (not backed by anything other than the future labour of even those not yet born) which enables the global banking system to create housing and other bubbles in the first place.

    I (sincerely) feel sorry for the majority of people out there who have no where to go whereby they can learn about real history, which is now hidden and not disclosed at all even by even the highest levels of educational institutions.

    All have now been “muzzled”, including and especially the churches who are the ONLY institutions that are supposed to be handing out social welfare!!!

    America actually started out the right way, with the churches ONLY distributing social welfare provided by free will offerings (that is, not coveting their neighbour’s goods through the agency of government as we do today) and this is what made America such a prosperous, powerful and truly free country originally (with better foundations than any other country in the Western world).

    This information is now deliberately kept from the people by the very institutions they go to be educated. I know it is almost impossible to believe, but as I said, I feel sorry for the majority of people who will soon have to suffer incredibly due to a lack of (real, genuine, correct and useful) knowledge.

    You can actually find old American legal cases whereby it was argued that the State/government are NOT meant to be involved in social welfare, which is something that is supposed to be handled only by the people themselves through their church system; which of course used to be an actual form of goverment and not just somewhere one goes to on Sundays. No wonder no one believes any more!!

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