Big four banks heavily exposed to investors

Has Westpac Banking Corp (ASX:WBC) overexposed itself to property investor loans?

| More on:
a woman

You鈥檙e reading a free article with opinions that may differ from The Motley Fool鈥檚 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

With market concerns over a housing bubble forming in Sydney, and possibly Melbourne, it's timely to take a look at who's most exposed to potential falls in property prices.

As the chart below shows, Sydney median house prices have galloped ahead in recent times, leaving most other capital cities behind.

Source: ABS
Source: ABS


For those who may not remember, Sydney median house prices crashed down by 13.9% between September 2008 and March 2009 and dropped by 10% within six months in 2011, according to data from the Australian Bureau of Statistics (ABS).

The biggest concern, of course, is how much of that is driven by investors, perhaps speculating on short term rises to lock in capital gains, or those jumping into the market for fear of missing out (FOMO). Investors may be also much more likely to sell out if property prices begin to fall back, perhaps exacerbating the falls.

The following chart shows that the value of investors' loans has overtaken that of owner-occupied loans, particularly as the official cash rate has dropped, taking mortgage rates with it.



The following table also shows that Westpac Banking Corp's (ASX: WBC) has the highest dollar value of investor loans at $151 billion as at May 2015, compared to Commonwealth Bank of Australia (ASX: CBA) with $128 billion, with National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) with less than half that exposure.

Investors Owner-Occupied Mortgages percent of loans Total All Loans ($m) Investors ($m)
Australia and New Zealand Banking Group 18% 43% 60% 343,421 60,375
Bank of Queensland Limited (ASX: BOQ) 35% 44% 80% 30,194 10,658
Bendigo and Adelaide Bank Ltd (ASX: BEN) 24% 42% 66% 46,358 11,147
Commonwealth Bank of Australia 24% 45% 70% 522,170 127,904
National Australia Bank 17% 41% 58% 397,736 65,759
Suncorp Group Ltd (ASX: SUN) 26% 54% 80% 47,919 12,335
Westpac Banking Corporation 32% 39% 71% 471,106 150,869

Source: APRA

Westpac's recent move to limit Loan-to-valuation (LVR) ratios to 80% for investor loans shouldn't then come as much of a surprise. In other words, investors wanting a mortgage loan will have to stump up a deposit of 20% of the property value or more, before the bank will give them a loan. Investors could previously get a loan with just a 5% deposit.

National Australia Bank has capped investor LVRs at 90%, and ANZ is reportedly taking the same action. One thing to note from the table above is that Bank of Queensland is the only bank with a higher percentage of investor loans than Westpac, but still has a maximum LVR of 95%.

The move by the three majors is to slow the rate of investor loan growth, which has jumped by 10.4% compared to May 2014, above the banking regulator's speed limit of 10% a year. The Australian Prudential Regulation Authority (APRA) announced the cap in December 2014, but clearly, the banks were unable (or unwilling) to slow investor lending until now.

Foolish takeaway

Clearly given its dollar value exposure ($151 billion and 32% of all loans) to Australian property investors, Westpac is at the forefront of any pullback in property prices. Double digit falls across the country like Sydney has experienced twice in the past six-to-seven years would be a huge problem for the bank, and it could be facing a similar issue it faced back in 1991-92 when it almost went bust.

Buyer beware.

Motley Fool contributor Mike King doesn't own shares in any companies mentioned.聽You can follow Mike on Twitter聽@TMFKinga The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering adiverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on 鈴革笍 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

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.
鈴革笍 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
鈴革笍 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
鈴革笍 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

鈴革笍 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