Australia’s banks are partly insulated from rising house prices and a profit upgrade by the nation’s largest lender, Commonwealth Bank, would result in higher than expected first half earnings, Fitch Ratings says.

The global rating agency said Australia’s major banks would be buffered by the impact of further rises in house prices and interest rates hitting consumers.

Fitch’s director of financial institutions, Tim Roche, said the agency took comfort from the “well seasoned” mortgage books of the banks which have an average loan-to-valuation ratio of around 60 to 70 per cent on an original valuation basis.

“If you look at it using the current value for houses that drops down to below 50 per cent for most of the houses,” he told media and analysts on Monday.
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Fitch Ratings has applauded proposed prudential liquidity changes for Australian banks and warned of further deterioration in their asset quality as highly geared households come under pressure from rising unemployment.

The global credit ratings agency expects the erosion in the banks’ corporate and commercial loan portfolios to continue during the first half of fiscal 2010, and for the deterioration to spread to consumer loan books.

“Asset quality in consumer loan portfolios will likely weaken as unemployment rises and interest rates increase,” Fitch said in a report released from London on Wednesday.

Fitch expects Australia’s unemployment rate to rise from 5.7 per cent in November to around 6.1 per cent during 2010, noting that the current level does not capture underemployment caused by reduced working hours instead of redundancies.
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photo credit: kretyenBy Jill Fraser for Lending Central

Despite continued economic volatility globally mortgage delinquencies have not worsened and overall Australian residential borrowers have kept up their mortgage repayments.

Credit ratings agency Fitch Ratings’ last report, released this week, reveals that delinquencies have continued their downward trend, decreasing between the first three months of this year and the second quarter.

Arrears improved slightly across all sectors except for non?conforming reduced?documentation loans in the 30-59 day bracket, which increased to 4.87% in the second quarter of this year from 4.45% in the first quarter.

General ongoing arrears stability suggests that peak arrears were reached in the last quarter of 2008 and arrears are not likely to reach those levels again for the remainder of 2009.
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Global credit agency Fitch Ratings has affirmed the long-term rating of ANZ Banking Group Ltd as AA-minus after the bank spent $US550 million ($A687 million) to acquire some of Royal Bank of Scotland Plc’s (RBS) Asian businesses.

Fitch said ANZ will retain its long-term issuer default rating of AA-minus, with a stable outlook, due to the relatively modest impact on the bank’s capital position.

ANZ, already Australia’s biggest bank in Asia, announced on Tuesday it will buy RBS’s retail, wealth management, commercial and institutional banking businesses in six countries, with the largest operations from Taiwan.

The businesses will increase ANZ’s operating income by about five per cent and are expected to add to earnings per share within two years of the deal being completed, the bank said.
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Mortgage arrears decreased in the first quarter as cuts to interest rates and the federal government’s stimulus payments offset the debt binge that traditionally takes place at Christmas.

Fitch Ratings said in a statement on Wednesday that it was the first time in 10 years of measuring arrears that there had been a decrease in the first quarter from the fourth quarter.

“Increases usually occur due to seasonal Christmas credit spending,” Fitch associate director for structured finance Leanne Vallelonga said in the statement.

“However, the combination of historically low interest rates and the Australian government’s $1,000 payments to eligible families in December 2008 has provided a buffer.”
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Mortgage delinquencies in Australia on full-documentation loans deteriorated during the December quarter, while delinquencies on non-conforming low-documentation loans reached a record high, according to global ratings agency Fitch Ratings.

Delinquencies on full-documentation home loans that are past 30 days due increased to 1.75 per cent for the December quarter from 1.5 per cent during the June 2008 quarter, Fitch said in a statement.
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