Investor tightening will strengthen our banks, says ratings agency

by Julia Corderoy30 Jul 2015
The major banks’ move to reprice their residential investor loans and curb investor lending is credit positive, according to a global ratings agency.

Increased lending rates are credit positive for the banks, according to Moody’s, because they rebalance the banks’ portfolios away from the higher-risk investor and interest-only lending toward safer owner-occupied and principal and interest loans.

Moody’s also says that the major banks’ tightening of investor loans also helps to preserve net interest margins and profitability amid higher capital requirements and increased competition from smaller lenders.

An analysis conducted by Moody’s revealed that although investment and interest-only loans performed well during the global financial crisis of 2007-10, they inherently carry higher default probabilities, which means higher delinquencies for Australian banks at times of stress.

According to the data, investment loans typically have higher loan-to-value ratios. The average loan-to value ratio for investment loans was 60.2%, versus 57.8% for owner-occupier loans.

In addition, since investment properties are not the primary residence, they are more sensitive to changes in house prices and borrower employment status. This means borrowers are more likely to default on their investment loan if their circumstances change. Meanwhile, interest-only loans are more exposed to rising interest rates than principal-and-interest loans.

“We see APRA’s and the banks’ efforts to slow the growth in investment lending as an important credit support for the system,” the ratings agency said.


  • by Regional Broker 30/07/2015 9:12:51 AM

    Really what else are these people going to say , increased margins always will bring a positive response , it is not rocket science Moodys!

  • by country broker 30/07/2015 9:36:46 AM

    how is increasing the interest rate on existing loans slowing down investment lending...these customers already have purchased....this is just revenue raising by the banks - this is just pure profit because the reserve bank hasn't increased the cash rate for investment lending.

  • by Aleks 30/07/2015 9:45:25 AM

    Was there a problem with our banks strength in the first place?