SYDNEY (Reuters) – Rates of arrears on home loans are at a decade high in Australia, although the overall rate is still too low to threaten financial stability or bank profit margins, a top central banker said on Friday.
In a speech in Sydney, Guy Debelle, the deputy governor of the Reserve Bank of Australia (RBA), said tighter lending standards had helped keep the national mortgage arrears rate at just 1%, low by both historical and international standards.
“Nonperforming loans currently pose little risk to the health of financial institutions,” Debelle said. “The risks that mortgage arrears currently pose to bank profitability are low.”
Still, he said arrears on mortgages were at a decade high, largely because of weakness in the states of Western Australia and the Northern Territory, which had been hit hard by falling home prices.
Arrears in Western Australia had more than doubled in the past decade to 1.8%, while home prices had fallen 20%. About 40% of loans more than 90 days in arrears were also in negative equity.
Nationally, about 15% of loans in arrears were in negative equity, but that was equivalent to just 0.1% of all housing loans, Debelle added.
He said loans granted since Australian regulators began tightening bank lending standards in 2014 had an arrears rate almost 40 basis points lower than loans before that.
“The lower arrears rates for more recent loans suggests these tighter lending standards have been effective,” Debelle said.
“It seems unlikely that the national arrears rate will increase substantially from here,” he added, in part because the central bank’s three cuts in interest rates since June were lowering interest payments and supporting employment.
Rates are now at a historic low of 0.75% and financial markets wager a further easing to 0.5% is likely next year.
(Reporting by Wayne Cole; Editing by Clarence Fernandez)