MNI BRIEF: Aussie Bank Regulator Expects 'Pockets of Stress'

Risks to financial stability are contained but some pockets of stress are likely to emerge amid high rates and the rollover of fixed rate mortgages, Australian Prudential Regulation Authority chair John Lonsdale told the Senate economics committee.

"APRA, alongside peer regulators and the industry, will continue to scrutinise impacts to the economy particularly mid-year when many fixed rate loans are due to expire," Lonsdale said. "A significant proportion of housing credit on low fixed rate terms will expire this year. APRA is engaging with banks to ensure that they are working proactively with affected customers."

The Reserve Bank of Australia's head of economic analysis Marion Kohler told a Senate select committee on February 1 that an estimated AUD350 billion of fixed rate loans were set to roll over this year. She said the number of loans set to roll over was in the "high 800,000'" range. (See MNI BRIEF: Wage Hikes To Play Out 'A Bit further' - RBA's Kohler)

"Although some pockets of stress are likely to emerge this year, overall prudential indicators suggest that risks to financial stability are contained," Lonsdale said. "Prior prudential measures aimed at strengthening banks’ balance sheets and their lending standards mean that the system is well placed to absorb a more challenging period while continuing to meet the credit needs of households and businesses."