Banks urged to boost capital to cover home loans

Wednesday 25 January 2012

Article by Mozo

Australia's major banks have been urged to boost their capital stocks in case the property industry crashes.

The International Monetary Fund (IMF) has conducted a stress test on the country's major lenders and has concluded that a downturn in the market could be disastrous for home loan providers.

In the event of another global economic crisis, the residential mortgage market would be left exposed as things stand, as cash reserves are not currently in place, the IMF report noted.

ANZ, Westpac, Commonwealth Bank and National Australia Bank were targeted during the stress test, as these four institutions hold around 80 per cent of the entire country's mortgages.

"Combining residential mortgage shocks with corporate losses expected at the peak of the global financial crisis would put more pressure on Australian banks' capital," the report stated.

The Daily Telegraph recently reported that the Australian government would welcome the entrance of Japanese lenders into the home loan market in order to boost competition in the sector, as long as the firms met strict trading standards.

Banks urged to boost capital to cover home loans

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