nabNarayanan Somasundaram

Home loan volumes have recovered after the big banks jacked up rates, NAB’s finance chief says. Photo: Louise Kennerley

National Australia Bank is confident about the prospects for corporate and mortgage lending despite the nation’s slowing economy and recent signs that property prices may fall.

Home lending has “kicked back again” after the recent increase in mortgage rates, NAB’s Chief Financial Officer Craig Drummond said in a telephone interview on Tuesday. At the same time, record-low interest rates and a falling currency have helped sectors of the economy such as tourism, education and health care, stimulating demand for business loans,

“We are very relaxed about the medium-term outlook for Australia,” Mr Drummond said. “The Australian economy has solid growth rates underpinned by a competitive currency, access to strongish growth of the Asian region and very pristine credit quality.”

Mortgage demand

Demand for home loans faltered only briefly after Australia’s big banks last month announced the first mortgage-rate increase in five years, Mr Drummond said. The big four have jacked up home loan rates blaming the cost of holding more regulatory capital as regulators imposed tougher standards to cool the housing market.

NAB said on October 23 it would raise its standard variable home loan interest rate by 17 basis points to 5.6 per cent from November 12.

“After the rate rise, we saw a few quieter weeks, but now volumes have kicked back up again,” Mr Drummond said. “They are not perceptibly lower than where they were a year ago.”

Still, there are signs that the large increases in house prices in 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 per cent rise in dwelling values in the three years to October 31. Economists from Macquarie Group to Bank of America Merrill Lynch have forecast a decline in prices over the next two years.
‘Distractions’ removed

Meanwhile, consumer and business confidence has improved as a result of the weaker Aussie dollar and greater political certainty after Malcolm Turnbull became Prime Minister in September, Mr Drummond said. NAB has seen an “uptick” in corporate credit demand since the change of power, he added.

NAB last month revealed rising competition for business customers had forced it to cut interest rates on company loans, crunching its profit margins.

Taking away the “distractions” of its overseas markets, the bank is now free to focus on loans to businesses and home owners in Australia and New Zealand, the finance chief said.

Mr Drummond and chief executive Andrew Thorburn have led NAB’s push to exit underperforming assets overseas and focus on markets closer to home. The lender has sold its US businesses and is in the process of spinning off its UK unit.

The Australian economy has expanded below the 30-year average annual growth rate of 3.3 per cent for six of the past seven years, as the mining investment boom ended and China’s economy slowed, prompting the RBA to drop rates to a record low.

On the other hand, the 32 per cent drop in the Aussie 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 per cent in September from a year earlier, the fastest pace in almost seven years, central bank data show.
Bloomberg

Thanks and source: http://www.smh.com.au/business/banking-and-finance