Australian banks asset quality still strong despite surging mortgage arrears

Capital ratios of major banks rose ahead of higher capital requirements by 1 January.

Australian banks’ overall asset quality maintains its strength amidst rising residential mortgage arrears, according to a Moody’s report.

Capital ratios of major banks expanded ahead of the implementation of higher capital requirements on 1 January 2020, the report noted. Banks also have sufficient shareholder equity buffers to cover non-performing loans (NPL).

Housing loan growth remains sluggish due to tighter loan underwriting criteria, low sales volumes and faster repayments of existing loans. The conversion of interest-only loans to principal and interest payment led to rising domestic mortgage arrears, but it has yet to affect actual impairments.