Market headed for credit roller-coaster ride

May 02, 2014
Samantha Korzeniewski

A sharp rise in interest rates would put bank debt levels in the danger zone and could risk the stability of lenders, the latest PwC banking survey has found.

Respondents stressed that bank debt levels remain high globally, and could easily deteriorate if the global economic recovery falters or interest rates rise sharply.

While Australian banks are strongly capitalised, interest rate fluctuations are an important part of the assessment process for mortgage lending, Australian Banking Association chief executive Steve Münchenberg told Mortgage Business.

“When assessing a person’s ability to repay a mortgage, banks do take into account that interest rates can increase and this is an important consideration in the assessment process,” Mr Münchenberg said.

“Australians continue to pay down debt, a trend that has been occurring since the GFC, and Australian banks have a strong track record in mortgage lending,” he said.

Tony Greenham, head of finance and business at UK think tank New Economics Foundation, responded to the PwC survey with particular concern about home lending risks.

“The fundamental bias towards credit secured on assets, particularly property, has not really been addressed by any of the regulatory or institutional reforms since the crisis,” Mr Greenham said.

“Hold your hats for another roller-coaster ride,” he warned.

Posted in: Interest rates

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