Big banks say mortgage holders resilient, but retail and hospitality sectors suffer from higher rates

Australian mortgage holders are managing higher interest better than expected, but retail and hospitality sectors are already showing signs of stress as spending adjusts.

Home loan customer’s resilience amid significantly higher rates has been ‘very surprising’, says NAB chief executive Ross McEwan.

Australian mortgage holders are coping unexpectedly well with higher interest rates but are curbing their spending on retail shops, restaurants and hotels to afford higher loan repayments – and that is hurting businesses in those sectors already, two big bank bosses say.

With the impact of 12 cash rate increases that have multiplied home loan rates in the past year, making their way into the economy, moderate signs of stress are starting to emerge among the third of the population that has a mortgage.

Speaking at a parliamentary committee hearing on Wednesday, executives from National Australia Bank and ANZ said despite mortgage holders showing surprising resilience, stress was increasing among business customers such as those running cafes, shops and restaurants.

“What we have started to see in the last couple of months in particular is … certain segments of the small-business market where we’re starting to see some stress emerge: discretionary retail, accommodation cafes, restaurants,” ANZ group chief risk officer Kevin Corbally told the hearing.

“People are adjusting where they spend the money. They are still continuing to make their mortgage payments or their credit card payments … but they are adjusting expenditure elsewhere,” he said.

“Which I think to be candid is ultimately what the Reserve Bank is trying to achieve out of the increase in interest rates … an adjustment in spending.”

The comments came as Reserve Bank of Australia governor Philip Lowe said it was unclear whether further monetary tightening was necessary to bring inflation down after 400 basis points worth of hikes in the past 14 months.

Speaking at an Economic Society of Australia lunch in Queensland on Wednesday, Dr Lowe said “whether or not this is required will depend on how the economy and inflation evolve”.

The central bank left rates at 4.1 per cent this month, only its second pause since May last year.

“Our priority remains to ­ensure this period of high inflation is only temporary,” Dr Lowe said.
The rapid tightening of monetary policy was “working to ­establish a better balance of supply and demand in the economy and thus to bring inflation down,” he added.

ANZ said that just as over a thousand of builders had gone into liquidation in the past 12 months because they had been unable to pass on higher costs, other business segments would likely face similar challenges in coming months.

“Whilst the number of (business) customer that are in difficulty has sort of remained somewhat steady, or fallen, our expectation would be that that would look to increase over the remainder of this year and into next year as well,” Mr Corbally said.

“Because of the impacts of those things like higher interest rates that people would have limited scope to potentially pass on.”

NAB, Australia’s largest business lender, also told the hearing that stress in parts of the hospitality and discretionary retail industry was starting to rise.

“But nothing to be alarmed about at the moment,” NAB chief risk officer Shaun Dooley said. “We’re watching it pretty closely and we’re ensuring that we’re staying close to our bankers.”

“We’re seeing a pretty resilient customer base, actually. And it has held up probably better than what we expected this time last year.”

He said with the prospect of further interest rate increases the bank would monitor and engage with customers “very closely”.