True confessions should include banks ‘ don’t give a damn...it’s just time to write down the
debt and sell if off to the next round of unsuspecting suckers...and what about all the $25k
credit cards added on to the mortgage.
More Australians getting in over their heads in personal debt, Westpac report reveals
By David Taylor
Updated
It is known as 'confession season' for Australia's big banks, and the biggest sin this reporting season seems to be bad loans. Westpac has reported a rise in the number of Australians who cannot keep up with their mortgage payments, as well as more stressed assets on its business loans.
The bank said the financial squeeze had hit Western Australia, South Australia and Queensland, in regions affected by the mining slowdown. Earlier in the week the country's biggest home loan provider also reported a rise in debt defaults.
So are home buyers getting in over their head? The answer is 'yes', according to Velocity Trade banking analyst Brett Le Mesurier. "There are signs of that," Mr Le Mesurier told PM. In an update to the market on Thursday, Westpac revealed a rise in bad loans across both business and household lending.
Australia's second-largest home lender said the proportion of loans at least a month behind in repayments rose to 1.39 per cent, up from around 1 per cent just nine months ago. Home loans at least 90 days behind have also jumped, suggesting owner-occupiers are in the most financial trouble.
Mining states hit hard
"It's not really Sydney and Melbourne," Mr Le Mesurier said. "Sydney and Melbourne are showing signs of increasing arrears but it's still small. "It's really relating to the mining states." Financial risk expert Satjadit Das has written numerous papers on debt and risk. He declined an interview but told PM that loans were being supported by artificial collateral value — in other words, inflated property values.
Mr Das said debt sustainability was also based on artificially low interest rates. Independent economist Saul Eslake agreed with that analysis, adding there was every chance Australia's personal debt problem would worsen.
"It could well be that the level of bad or impaired debts continues to rise especially if income growth remains as weak as it has been in recent years," Mr Eslake said. "Even wealthy people have limits on how much additional debt they're willing to take on and it could be that on recent years we've started to approach those levels."
RBA governor hints at problem in final speech
Australia's top banker, RBA governor Glenn Stevens, pointed to the problem on Wednesday during his last speech before stepping down next month. But while he mentioned the problem, he offered no solution. "Gross public debt, if you add up all levels of government, is about 40 per cent of GDP," Mr Stevens said. "We're rightly concerned about the trajectory of that ratio in to the future, but gross household debt is three times that size, it's 125 per cent of GDP. "That was not unmanageable, but nor is it a low figure."
Both the Commonwealth Bank full-year result and ANZ's trading update this week point to credit quality on the slide. The Commonwealth Bank reported a 27 per cent increase in bad loan costs over the year. Westpac shareholders voted with their feet on Thursday, sending the stock down over 2.5 per cent by the close of trade.
More Australians getting in over their heads in debt
Posted
Westpac says it's seen a rise in borrowers who can't pay their debts. The bank says the financial squeeze has hit Western Australia, South Australia and Queensland in regions affected by the mining slowdown. Earlier in the week, the country's biggest home loan provider also reported a rise in debt defaults. So just how serious is Australia's personal debt problem?
Audio: Listen to David Taylor's full report. (PM) http://www.abc.net.au/news/2016-08-11/more-australians-getting-in-over-their-heads-in/7722144