S&P backing macro-prudential tools

RATINGS agency Standard & Poor’s says Australia’s banks could benefit from the introduction of macro-prudential measures.

RATINGS agency Standard & Poor’s says Australia’s banks could benefit from the introduction of macro-prudential measures to cool the property market over the long run, given such tools may help reduce risks in the ­financial system.

As regulators consider introducing macro-prudential methods to help quell pockets of the property market, S&P said a move was “increasingly likely”.

“We do not expect the application of macro-prudential measures, by itself, to have any immediate ratings impact, either upward or downward, on Australia’s financial institutions ratings,” said S&P credit analyst Andrew Mayes. “Nevertheless, we believe application of macro-prudential measures could contribute to a dampening in emerging pressures on economic imbalances and credit risk within the Australian economy, reducing the potential risk to financial system stability by reducing the risk of a material fall in residential property prices.”

Expectations that macro-prudential tools will be employed to rebalance the housing market were sparked last month after RBA assistant governor Malcolm Edey revealed the central bank was in discussions with APRA about how sound lending practices could be reinforced, particularly when it comes to finance for investment housing.

Official interest rates have been at a record low 2.5 per cent for the past 14 months as the RBA deals with low economic growth.

Mr Mayes said any macro-prudential measures were likely to “trigger a slowdown in investor and interest-only residential mortgage lending”.