RBA zeroes in on balance sheets

The strength and resilience of the banks' and household balance sheets - rather than indicators such as credit or rising house prices - are a key focus for the RBA, assistant governor Michele Bullock said.

Bullock told this morning's Bloomberg address on the risks facing Australia's economy since the global financial crisis that she personally would not speculate on a housing bubble.

"What we're really focusing on is to what extent are things like the growth in house prices and the growth in debt signalling about whether or not households have balance sheets that can withstand a downturn," she explained.

She added: "The other issue we worry about, in a systemic sense, is to what extent is there procyclicality in the prices of these things? Is there evidence that people have seen prices rise and they think prices will always rise?"

Bullock noted that the proportion of loans that are high loan-to-valuation ratios have fallen, which is something "positive," indicating more resilience in balance sheets.

"We're seeing things pick up again and that's why we're watching it very carefully and considering whether we might need to do more," she said.

In terms of lending practices, she continued, what an individual bank is doing "might look okay," but if a whole group are doing a similar thing, "it can have a very dramatic effect."

She said the RBA is making sure "banks are not over-extending themselves; not taking risks that in the event of a downturn would render them under water or that households would do the same thing."

Bullock also pointed to the recent investor housing growth that is starting to speed up again.

Investors can be the first to bail during a downturn, which could add procyclical concerns and is something the bank is watching carefully, Bullock said.

Read more: Michele BullockAustraliaBloomberg
Editor's Choice
EMMA RAPAPORT
Industry super thought leaders have urged the sector to harness the power of the collective and collaborate more closely on problem solving to ensure longevity and continued member engagement.
ALEX BURKE
Citi is expanding its wealth management business with four new hires.
ALEX BURKE
ASIC's investigation into CommInsure found no evidence of claims managers applying pressure on medical staff to change assessments, although the regulator said claims handling fell short of community expectations.
KARREN VERGARA
AZ Sestante, a subsidiary of Italian wealth management firm Azimut Holdings, recently entered the Australian market by launching three new funds on the Colonial First State platform.
Videos
Brought to you by
20 MAR 2017
Growth in multi-factor strategies was born out of the GFC as investors increased the search for investments that target a smoother ride in volatile and often event-driven markets. The SPDR MSCI World Quality ...
Get it Daily
Keep up to date, don't be the last to know! Get the Financial Standard Daily Newsletter.
SUBSCRIBE
Products
Pocket investment guides featuring adviser case studies and a glossary.
Investing trends and strategies from the industry’s thought leaders.
Putting the spotlight on investment products that matter.
Expert Feed
Christopher Page
FS ADVICE
A new era
After years of back and forth, the legislation to increase the professional standards of financial advisers has been passed. The new ...
Stephen Fay
FS SUPER
Starting at the insurance base camp with focus on value
Insurance can be a complex beast, but in a period where its reputation may be strained it is all the more important to talk of some ...
Christopher Page
FS PRIVATE WEALTH
Redefining the family office
While the family office model has traditionally been the preserve of the ultra-rich, this may be changing very soon. Last week, Findex ...
Michelle Baltazar
FS MANAGED ACCOUNTS
Like rocket fuel to a Spaceship
When a superannuation fund calls itself a Spaceship and nobody bats an eyelid, you know you're entering a new era in retirement investing. Spaceship's ...
Featured Profile
Professional Subscription for $295
(inc GST) for 1 year.
SUBSCRIBE
OTHER PUBLICATIONS
FS Advice
The Australian Journal of Financial Planning.
Get the free iPad app
Download the Financial Standard iPad app for FREE.
DOWNLOAD
Link to something RuiTokad