From today’s edition of banking ezine The Sheet:
The level of impaired assets at banks in Australia is unusually benign, with the ratio of troubled assets to total loans hovering around the 0.2% mark for both residential property and commercial property. But one slice of commercial lending – commercial property in the leisure and tourism sector – turns out to be responsible for a lot of trouble.
The half yearly report on financial stability published yesterday by the Reserve Bank of Australia shows that the level of impaired assets within the tourism and leisure sector is equal to 1.2% of all lending to that sector.
The overall sector average for the level of impaired assets within commercial property is 0.2% according to the RBA. The other two sectors within commercial property with an above average level of impairment are the “other” segment, with an impairment ratio of 0.6%, and residential developments, with a ratio of 0.6%.
The RBA doesn’t comment on the significance of this statistic, but does note in the review that the rate of growth in lending for commercial property, at 11%, “has been growing fairly briskly” and is above the rate of growth of commercial credit, though a little lower than the rate of growth in consumer demand for loans for residential purposes.
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The relatively high level of arrears in loans over leisure and tourism property may be worth watching. By definition, the businesses that operate leisure and tourism assets are highly sensitive to shifts in consumer sentiment and household budget priorities, such as the need to dedicate more household income than before to debt repayment.