National Australia Sees Demand for Business, Home Loansby
Weaker currency boosting tourism, education, CFO says
Demand back at 2014 levels despite mortgage-rate increases
National Australia Bank Ltd., which is exiting overseas businesses to focus on its home market, is confident about the prospects for corporate and mortgage lending despite a slowing Australian economy and recent signs that property prices may fall.
Record-low interest rates and a falling currency have helped sectors of the economy such as tourism, education and health care, stimulating demand for loans, while home lending has “kicked back again” after the recent increase in mortgage rates, National Australia’s Chief Financial Officer Craig Drummond said in a telephone interview Tuesday.
“We are very relaxed about the medium-term outlook for Australia,” Drummond said. “The Australian economy has solid growth rates underpinned by a competitive currency, access to strong-ish growth of the Asian region and very pristine credit quality.”
Consumer and business confidence has improved as a result of the weaker Australian dollar and greater political certainty after Prime Minister Malcolm Turnbull deposed his predecessor Tony Abbott in a party vote in September, Drummond said. National Australia has seen an “uptick” in corporate credit demand since the change of power, he added.
The bank is free to focus on loans to businesses and home owners in Australia and New Zealand as it takes away the “distractions" of its overseas assets, he said.
Drummond and Chief Executive Officer Andrew Thorburn have been at the forefront of the bank’s efforts to shed underperforming assets overseas and focus on markets closer to home. The lender has sold its U.S. businesses and is in the process of spinning off its U.K unit.
The Australian economy has expanded below the 30-year average annual growth rate of 3.3 percent for six of the past seven years, as the country’s mining investment boom ended and China’s economy slowed, prompting the central bank to drop rates to a record low.
On the other hand, the 32 percent drop in the Australian dollar since the start of 2013 has helped exporters and firms in tourism, health care and education, which benefit from more foreign visitors. Business credit expanded at 6.3 percent in September from a year earlier, the fastest pace in almost seven years, central bank data show.
Meanwhile, there are signs that the large increases in house prices in cities such as Sydney and Melbourne are starting to cool. The proportion of successful home auctions in Sydney dropped to the lowest since March 2013 last week, as buyers balked at a 47 percent rise in dwelling values in the three years to Oct. 31. Economists from Macquarie Group Ltd. to Bank of America Merrill Lynch have forecast a decline in prices over the next two years.
Drummond downplayed the chances of a sharp drop in prices as long as Australian employment levels remain healthy, noting that forecasters have been predicting a property market crash for about ten years. Recent employment data has been positive, with the jobless rate dropping to 5.9 percent in October from 6.2 percent the previous month. The economy added 58,600 jobs in October, the most in 3-1/2 years, government data showed this month.
Drummond said that demand for home loans faltered only briefly after Australian banks last month announced the first mortgage-rate increase in five years. Banks pushed up their home lending rates to cover the cost of holding more regulatory capital, as Australian regulators imposed tougher standards to cool the housing market.
“After the rate rise, we saw a few quieter weeks, but now volumes have kicked back up again,” Drummond said. “They are not perceptibly lower than where they were a year ago.”