Banks reassess exposure to mining towns

As rental yields in some areas become unsustainable, the banks are protecting themselves from the chance of borrowers defaulting.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

In order to lessen the chance of borrowers defaulting on their loans, Australia's major banks are reassessing their exposure to risky mining towns as rental yields in some areas have become "not sustainable".

During the height of the resources boom, demand for home loans and rental properties was enormous, however, as construction spending declines and the miners become more cost-effective with less working capital, that demand for accommodation drops making yields unsustainable.

Coming at a time where the banks have been under pressure from the Australian Prudential Regulation Authority and the Reserve Bank of Australia to not relax their lending standards as competition in the market heats up, Commonwealth Bank (ASX: CBA) and ANZ (ASX: ANZ) have both curbed riskier lending in areas that are heavily reliant on the resources industry.

As reported by The Sydney Morning Herald, Commonwealth Bank will now cap at 8% the rental yield that it factors in for new property investment loans in these higher risk areas. ANZ has also added a number of areas in Queensland to the list of higher-risk postcodes. Meanwhile, Westpac (ASX: WBC) also maintains a policy whereby it limits low-deposit loans in "single-industry towns" to lessen its exposure whilst NAB (ASX: NAB) doesn't have a formal policy on the issue.

Areas on the list, which are all located in either Queensland or Western Australia, face an 80% cap on loan-to-valuation ratios for new loans to property investors.

Foolish takeaway

Whilst an "extra level of caution" is being taken, an ANZ spokesman, Stephen Ries, stated that "We are continuing to lend in these towns and since this policy was introduced in January the majority of applications have been approved."

Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »