Australian banks downgraded as concerns mount over falling property prices
5 October 2018
Australia’s four major banks, depicted by the government and the media as among the most secure in the world, are no longer “unquestionably strong,” according to a credit rating agency. The reason is their exposure to record levels of household debt and declining real estate values.
In a survey of 100 world banks compiled by S&P Global Ratings, Australian banks last year experienced among the “steepest declines” in their risk adjusted capital, or RAC, pushing them into the bottom half of global rankings. They would need to raise billions of dollars to return to the “unquestionably strong” top quarter of lenders.
This result, reported on the front page of the Australian Financial Review on Wednesday, but virtually nowhere else, is another indicator of a potential property and financial crash that would have devastating economic consequences, particularly for millions of ordinary working people who could lose their homes.
Since 2012, soaring house prices, combined with falling real wages, have accelerated the rise in Australia’s total household debt to around $2.5 trillion, and around 200 percent of disposable household income—one of the highest ratios in the world. Back in 1991, the ratio was less than 75 percent.
The unsustainable property bubble, while enriching layers of investors, also kept the economy afloat after the collapse of the mining boom six years ago. That collapse itself flowed from the 2008-09 global crash, the impact of which was temporarily delayed by raw material exports to China, boosted by Beijing’s massive debt-driven stimulus measures.
Over the past year, however, house prices have begun to fall, threatening to leave many…