Banks in Australia could become cautious with their lending activities after recording huge losses on mortgages over the past four months, according to a recent report.
“We estimate the banks are currently losing money on new mortgages written in the current funding environment,” said the report.
“Unless the banks reprice mortgages or funding markets improve significantly, there is no direct economic incentive for the banks to continue to write new housing loans. We see this as a dangerous situation for both the banks and the broader Australian economy.”
As the Reserve Bank of Australia (RBE) considers whether to slash interest rates, a report released by UBS Securities stated that higher wholesale funding costs more and intense competition to write new mortgages had left banks facing a “dangerous situation”, with little incentive to offer new home loans.
Jonathan Mott, the report’s author and a banking analyst from UBS, said banks would be left with a tough choice if the RBA decides to slash rates, which could lead to passing on the full RBA cut in the hopes of improving wholesale funding markets, repricing interest rates on new loans above the official rate, or ceasing to write new mortgages.
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