Money Property How the property boom has pulled the banks into housing market risk
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How the property boom has pulled the banks into housing market risk

Property loans
The banks have increasingly hitched their stars to the property market. Photo:AAP
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Experts warn the increasing dependence of Australian banks on the property boom is putting both the banking system and the wider economy at risk.

Just how important playing the property game has become for the banks was highlighted when Westpac recently released its annual results. The bank’s chief Brian Hartzer, who earned $6.7 million for the year, said lending for mortgages accounted for 62.4 per cent of the bank’s outstanding loan book of $684.9 billion.

Martin North, analyst and principal of Digital Financial Analytics, said that figure would “be closer to 70 per cent” if you add in the lending to property developers and other businesses related to the industry.

Around 20 years ago the banks typically lent almost as much to business as they did to housing, he said.

Source: APRA

The above table details the move to housing lending. However it differs slightly from the figures Westpac quoted as it is gleaned from figures the banks report to APRA rather than the way they report in their shareholders.

Nonetheless, all figures on the chart are calculated in the same way so it tells a story about the shift to mortgage lending over the past 15 years.

What it demonstrates is that the four major banks are lending a greater proportion of their loan assets to the residential property market than they were in 2002 when both owner-occupied and investment lending are added together.

Two of the big four, Westpac and NAB, have reduced their proportional exposure to home loans slightly, but when all residential property lending is added together, all have increased their relative exposures.

The ANZ has seen its home loan exposure jump from 38.7 per cent to 43.4 per cent of its exposures.

As a result, the ANZ, traditionally a business-focused bank, has seen its proportion of corporate lending decline from 33 per cent of the loan book to 26.8 per cent.

This is potentially dangerous.

Mr Hartzer warned on Monday the residential construction cycle had “peaked” with no sign that business investment was growing fast enough to take up the slack.

“It’s hard to see what will take its place,” he said.

Independent economist Saul Eslake told The New Daily the move to property lending has been in train for some time.

“Business has been pretty conservative about borrowing for investment since the last recession in the 1990s,” Mr Eslake said.

“We had a big mining investment boom but most of it was funded by equity because of the degree of risk in those mining projects. And because 80 per cent of the mining industry is foreign-owned most of the money it did borrow came from foreign banks through existing relationships.

“The projects were so big the Australian banks mostly couldn’t have funded them.”

The banks would be more exposed than in the past to the effects of a major house price fall, Mr Eslake said, although he doubted such a disastrous outcome would eventuate.

“I don’t expect that to happen although some people have been talking about it.”

A number of factors have driven the housing boom including population and income growth for the past 25 years, a huge fall in interest rates and increases in the tax advantages to property investment through negative gearing and the halving of the capital gains tax level, he said.

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