ANZ plans 20pct equity buffer for home loans where property prices set to fall

ANZ will apply tighter lending criteria that will hit some of the nation’s postcodes where property prices are expected to drop.

Group executive Australia retail and commercial banking Mark Hand confirmed the tighter lending criteria in the bank’s third annual environmental, social and corporate governance briefing on Monday. Picture: iStock

ANZ Bank is insisting on a deposit of at least 20 per cent for new home-lending in some postcodes including in Melbourne, rising to 30 per cent-plus for some luxury homes amid expectations of a sharp correction in property prices due to the COVID-19 recession.

In the bank’s third annual environmental, social and corporate governance briefing on Monday, chief executive Shayne Elliott also said “good, old fashioned risk management” meant ANZ could shed some of its carbon-intensive customers if their lower-carbon transition plans were poorly developed or they showed no awareness of the issue.

Group executive Australia retail and commercial banking Mark Hand confirmed the bank’s more conservative home-lending criteria was not a blanket policy but applied in some pockets of the country including areas of locked-down Melbourne.

News of the conservative approach followed Mr Elliott’s appearance before the House economics committee on Friday, where he said property prices were likely to fall in a range of 10-15 per cent as a result of the recession.

“That is a worst-case scenario by our economics team and some of that (decline) has already played out so prices have already come off,” Mr Hand said.

“We do have postcodes where we won’t exceed certain LVRs (loan to valuation ratios), and we have seen this in the past when we considered WA property prices to be lower than what the market thought.

“So you’re absolutely right; there are pockets of the country where we won’t go beyond (an LVR of 80 per cent).”

ANZ had 84,000 deferred home loans worth $31bn at the end of July, or 9 per cent of its total number of mortgage accounts.

It also had 22,000 deferred business loans worth $9.5bn, or 14 per cent of its commercial lending portfolios.

Appearing before the same committee on Friday, Commonwealth Bank chief executive Matt Comyn broadly agreed with Mr Elliott’s forecast for the property market.

Mr Comyn, who has responsibility for the nation’s biggest home-lending book worth about $500bn, said the market had only drifted slightly lower.

This was after a strong performance in the year to July, with Sydney prices gaining 12 per cent and the Melbourne market lifting 9.5 per cent.

“So a fall of 10-12 per cent, given where the market is and how strongly it has performed in recent times, is entirely manageable,” Mr Comyn said.

On the contentious issue of carbon emissions by customers, ANZ said it would announce a new policy and tougher measures at its full-year result in October.

“If we really don’t see an alignment of values, we’d move to exit that customer, and the reason is it’s a red flag about good, old-fashioned risk management,” ANZ’s Mr Elliott said.

“If you are in one of those (high-carbon) industries and you’re not even thinking about this, or you’re dismissive, we’d have massive concerns about the viability of that business.”

In the meantime, the bank had started discussions in 2018 with 100 of its highest-emitting customers to encourage them to establish or strengthen existing low-carbon transition plans by 2021.

The discussions with companies in the energy, transport, food, beverage and agriculture industries would finish by the end of this year.

ANZ said the purpose of the project was to establish a “baseline” for how customers were responding to climate-risk and help the bank determine the nature of future discussions.

“As dreadful as this (COVID-19) issue is, it is an incredible learning opportunity – we are going to see our customers put through all sorts of stress and true character will emerge,” Mr Elliott said.

“We’re talking to the big end of town, and I think we should bank for the long term the customers who have treated their suppliers, employees, banks and customers well.

“Those doing the wrong thing – we need not to forget that.

“We won’t throw them under the bus or walk away from them tomorrow morning, because they’re our customers.

“But over time, we’re going to have to think twice about sticking to some customers. That is absolutely our intent.”

Mr Elliott said the vast bulk of customers had welcomed the engagement, seeing it as an opportunity to learn, as well.

No customer, he said, had indicated they were not taking the issue seriously or said they didn’t “get it”.

However, if discussions got to that point, it would be a “massive red flag” for ANZ in terms of the customer’s risk-management awareness and processes.

“And while it wouldn’t be black and white to say we would exit them, it would be a huge red flag issue, and we would have to sit down with them at a relationship level and ask if this is the kind of business we really want to bank for the long term,” Mr Elliott said.