Bank mortgages down $12bn in March quarter

According to new quarterly statistics from the Australian Prudential Regulation Authority (APRA), Australia’s 140 banks funded $132.7 billion in new residential mortgages in the three months to 31 March 2023 — 8.5 per cent less than the same period the year before.

The data affirmed trends by the Australian Bureau of Statistics (ABS), whose Lending Indicators data showed that the value of new loan commitments has been falling over the past few months. (In fact, the most recent ABS release showed that new housing loans fell 2.9 per cent to $23.3 billion in April 2023, which was 25.8 per cent lower compared to the same month in 2022.)

According to APRA, a total of $2.1 trillion of mortgages were on the banks’ books at the end of March — 5.3 per cent more than in March 2022.

Just over 67 per cent of mortgages (both new and existing mortgages) were for owner-occupiers and around 30 per cent was for investor lending.

New loans with high loan-to-valuation ratios continued to decline over the period, with 5.7 per cent of new mortgages having a loan-to-value ratio over 90 per cent (down 1.6 percentage points on March 2022).

Notably, the proportion of new mortgages written with a debt-to-income ratio over six (which APRA deems to be ‘higher risk new lending’) fell by a substantial 15.6 percentage points over the year, with just 7.5 per cent of new home loans falling into this bracket, down from 23.1 per cent in March 2022.

APRA noted that while housing credit continued to moderate over the year to March, non-performing loans and early arrears remained well below pre-pandemic levels.

The non-performing loan ratio increased marginally from 0.78 per cent to 0.82 per cent (however, the definition of ‘non-performing’ changed on 1 January 2022 because of the implementation of the new prudential standard APS 220 Credit Risk Management) while charges for bad and doubtful debts increased by 52 per cent over the March quarter to $0.9 billion.

This continued the reversal in trend over 2022 where releases in provisions raised during the pandemic resulted in a negative charge for bad and doubtful debts, APRA noted.

Provisioning coverage increased by 3 bps, which the regulator said reflected “industry expectations of a deterioration in asset quality due to the effects of elevated inflation, higher interest rates, and an uncertain economic outlook”.

Cost-to-income ratios fall

The APRA data also confirmed that ADIs’ cost-to-income ratios had fallen.

Several bank chief executives have previously flagged that large discounts and high cashback offers in the refinance space had resulted in mortgages being written below the cost of capital and the APRA stats showed that bank cost-to-income ratios decreased by 3.7 percentage points to 50.5 per cent over the year.

Although operating expenses increased by 3.2 per cent, this was outpaced by increases in net interest income, it found.

Net profit after tax increased by 7.7 per cent over the year ended March 2023 to $41.2 billion, while return on equity (ROE) increased by 0.6 percentage points.

APRA said that profitability was expected to “stabilise” over coming quarters though, as a result of slowing cash rate rises, continued competition, and rising provisions.

Overall, the data showed that the profitability, asset quality, capital, and liquidity positions of ADIs remained strong.

Total assets and liabilities were broadly unchanged over the quarter at $6.1 trillion and $5.7 trillion, respectively.

Deposits growth outpaced that of loans and advances.

[Related: Mortgage arrears lift amid tightening serviceability]