IT’S “very much business as usual” says the Newcastle Permanent Building Society after its credit rating downgrade this week along with Australia’s biggest banks.
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The society was one of 12 lenders, including the big four banks, to have its rating downgraded by Moody’s in response to what the credit rating agency described as “elevated risks” in the housing sector of high household debt, rising house prices and low wages growth.
It follows Standard & Poor’s downgrading of 23 Australian lenders in May, but acknowledgement by both credit agencies that Australia’s macro profile remained strong, down from very strong.
The downgrades were not a surprise and there had been no material change in the wholesale cost of finance to the society, Newcastle Permanent acting chief executive officer Mark Williams said.
“We’re not really expecting any significant impact coming out of the decisions. Moody’s also states the asset quality of the Australian banking system is strong and there will be an orderly unwinding of the factors that led it to make the decision to downgrade 12 lenders,” Mr Williams said.
It was worth noting that Newcastle Permanent, with assets of $10.5 billion, had the same credit rating as the much larger Bendigo and Adelaide Bank with seven times the assets, Mr Williams said.
The Greater Bank was not included in the Moody’s downgrade because it doesn’t have a Moody’s credit rating. Newcastle Permanent has elected to have both Moody’s and Standard & Poor credit ratings because “it’s a tool for us to more easily access wholesale credit markets”, Mr Williams said.
Newcastle Permanent’s inclusion in the Moody’s downgrade, along with the Commonwealth, NAB, Westpac, and the ANZ, follows several years of significant growth on the back of mortgage holders shifting from the big four banks to the society.
Between July, 2016 and May 31 the Newcastle Permanent lent about $700 million to borrowers re-financing from other institutions. The figure was similar the previous year, Mr Williams said.
The society had $900 million in equity, or more than double the equity required by Australian regulators, and was largely unaffected by recent lending caps imposed by regulators on investment and interest-only loans, he said.
“Our balance sheet has a lot of capital there as a buffer in case of shocks. The vast majority of our home loan portfolio is owner/occupier, principal and interest lending,” Mr Williams said.
The society’s very low 90-day arrears rate of 0.13 per cent of loans was four times lower than major banks and remained stable, he said.