Commercial Property the Bigger Risk to Banks: Fitch Ratings

Losses on commercial real estate loans pose a more immediate risk to Australia’s banks than developments in the housing market, where regulators are putting the brakes on riskier lending, Fitch Ratings says.

However, foreign banks are more likely than the local lenders to feel the pain if there is a sharp increase in buyers who cannot settle their off-the-plan purchases.

After a recent surge in apartment building, the credit ratings agency on Tuesday highlighted losses on loans to property developers as a more pressing concern than residential mortgages, which dominate banks’ loan books.

Tim Roche, head of Australia and New Zealand financial institutions at Fitch, told the ratings agency’s conference in Sydney that foreign bank exposure to Australian commercial property had roughly doubled since 2013.

While the Commonwealth Bank, Westpac, National Australia Bank and ANZ Bank have been more cautious and kept their commercial loan portfolios essentially flat in recent years, they remain the dominant lenders to this part of the market. It’s estimated about a quarter of the big four’s commercial property exposure is to developers, a lower percentage than during the global financial crisis.

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