Australian banks' slowing loan growth to persist as housing market further weakens

Home loans take up around 60% of banks' overall gross loans.

Official data from the Australian Bureau of Statistics (ABS) showed that Australian house price growth is already declining, and analysts at BMI Research believe that the housing market will continue to weaken, and therefore act as a drag on net interest income growth as mortgage loan growth slows.

Here's more from BMI Research:

According to the Australian Prudential Regulatory Authority (APRA), growth in housing loans (this category is a significant proportion of overall gross loans and advances, standing at around 60%) is already falling and is likely to remain under pressure.

In our view, factors that will result in a further slowdown in the property market include worsening housing affordability, tighter lending standards by Australian banks, waning investor demand (due to tighter capital controls by China), and impending housing supply.

With respect to tighter lending standards by the country's banks, these have been mainly driven by the APRA. Indeed, the regulator has been stepping up its supervision over the past couple of years.

For example, from late-December 2014, banks have to cap their annual growth of investor loans at 10.0%. In March 2016, banks were ordered to use higher interest rates when assessing serviceability, ensuring that borrowers can repay their loans if interest rates spikes to 7.0%.