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Australia Bank Mortgage Discounts Unsustainable, JPMorgan Says

Australia’s biggest lenders will be unable to sustain the discounts they’re now offering to mortgage borrowers in their efforts to boost flagging credit growth, JPMorgan Chase & Co. and Fujitsu Ltd. said.

In the short term, Australian banks can take advantage of declining interest rates for deposits to fund discounts on home loans, according to the semiannual JPMorgan/Fujitsu Australia Mortgage Industry Report released today. As maturing debt pushes the cost of refinancing higher, banks will face difficulty keeping up these discounts, the report said.

Growth in Australian home loan approvals has been slowing after the nation’s central bank raised interest rates seven times from October 2009 to November 2010 to prevent a property market bubble. Australia & New Zealand Banking Group Ltd., Commonwealth Bank of Australia, Westpac Banking Group and National Australia Bank Ltd. have all cut rates on fixed-rate mortgages to boost credit growth.

“Renewed competition in the current low growth environment is now driving the higher discounts being offered to mortgage customers, with improved pricing seemingly across the board,” Scott Manning, a Sydney-based analyst at JPMorgan, said in the report. “Australian banks will have an increasing balance of maturing term debt that will need to be re-financed over the coming three to six months, either through new wholesale debt or through deposits.”

With offshore funding still challenging, deposits will become more expensive and discounts now offered on mortgages unsustainable, Manning said.

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