Are Aussie banks too inked in housing debt?

With millions of Australians inking mortgages issued by the country's biggest banks, should we be at all worried about the stability of our financial institutions?

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For many Australians, their love of property is like that back tatoo. It’s often set and forget, and it ain’t going nowhere.

But with millions of Australians inking mortgages issued by the country’s biggest banks, should we be at all worried about the stability of our financial institutions?

That’s the fear raised in this Bloomberg and Fairfax Media opinion piece by former banker and finance specialist Satyajit Das, which ran top of the page in the business section and offered readers an interesting take on things, despite him even admitting that his views could be seen as a bit “alarmist.”

What we know about national housing debt, is that on a per adult basis, debt has increased by 136 per cent from 2004 to 2015, according to Finder.com.au analysis of Australian Prudential Regulation Authority data.

Higher house prices fuelled by low interest rates in a slow growth global economy, has seen the average national loan size increase from $189,300 in January 2004 to $372,400 in January 2016.

Mr Das warned that if economic growth slows further, the country’s big four banks were “dangerously” exposed to the housing market should things worsen, and that this basically needs to change for everyone’s sake.

But some economists have described his comments as being a bit extreme and here’s why.

“I don’t think he is saying anything new,” said AMP Capital chief economist Dr Shane Oliver.

“The banks have had a great run over many years as providing for non-performing loans (NPLs) has declined and housing strength has helped fuel solid credit growth.

Now NPLs have bottomed, the housing cycle has probably passed its peak and their cost of funding is going up as they have to set more capital aside.

“These things are well known and will constrain them, but in the absence of a recession or much higher interest rates – both of which cannot be ruled out at some point but seem very unlikely in the next year or so – it’s hard to see them running into major problems.

“More likely just a continued period of more constrained profits and relative underperformance,” said Dr Oliver.

Tim Harcourt, the Airport economist UNSW Australia said there was good readon to be cautiously optimistic about the stability of Australian banks.

“The banking system got us through the global financial crisis … and there is still opportunity for Asian expansion as show by ANZ in their strategic leadership in the region.”

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