Property crash could hurt Australian banks.
AUSTRALIAN banks need to stash away billions of dollars in case the nation’s overblown property market collapses, the International Monetary Fund has warned.
The hammer blow came after new research showed Melbourne remains among the world’s most unaffordable cities to buy a house – ahead of London, New York and Los Angeles.
The IMF has also cut gross domestic product growth expectations for the world economy for this year by 0.75 percentage points, to 3.25 per cent, as global trade slows because of the European debt crises.
The commodities market that Australia relies on is also tipped to plummet 14 per cent for the year as Asian growth slows.
In the face of another crisis, the global economic body argues in a working paper that the big four Australian banks should boost cash reserves due to massive exposure to the residential mortgage market.
The Commonwealth Bank, Westpac, NAB and ANZ hold about 80 per cent of the nation’s residential mortgage market, leaving them vulnerable in the face of a housing crisis.
“Combining residential mortgage shocks with corporate losses expected at the peak of the global financial crisis would put more pressure on Australian banks’ capital,” the IMF report says.
“It would be useful to consider the merits of higher capital requirements for systemically important domestic banks.”
Meanwhile, economists at ANZ have warned the Gillard Government’s Budget cuts will slow economic growth by up to half a percentage point a year for the next four years.
Deep cuts by the federal and state governments would produce “the weakest period of government investment since 1960,” economists said.
Treasurer Wayne Swan said the downgraded economic growth forecasts were a warning to all countries that the global economy continued to face serious threats.
“The IMF’s update also serves as a timely reminder that, while Australia is not immune, our region is much healthier and our economic fundamentals are among the strongest in the world,” he said in a statement.
“While no country can expect to be immune from the global threats identified by the IMF, Australia has solid growth, unemployment at half the levels of Europe, a massive investment pipeline, contained inflation and very low government debt.
“Australia recently received the coveted AAA credit rating from all three global ratings agencies for the first time in our history, reflecting our rock-solid economic fundamentals at a time when many other economies have suffered ratings downgrades.”