Builders, shops hit in slowdown: RBA
Home builders and shopping outlets have been identified by Australia's central bank as among the businesses facing the greatest difficulties in the country's slowing economy.
"The financial health of businesses generally remains good," the Reserve Bank of Australia said in its Financial Stability Review on Friday, but pointed to "risks in some industries".
"Discretionary retailers, small businesses, some construction firms and those affected by the drought are confronting challenging conditions," the RBA said in the publication it releases every six months.
Analysing the Australian financial system, the document cites "vulnerabilities that must be addressed" in the banking and insurance sectors.
"Profitability in the life insurance industry has declined further and is no longer at a sustainable level," it said.
"Life insurers are taking steps to address this, but the long-term nature of life insurance contracts means it could take some time to correct."
The RBA said the commercial "banks' asset quality has deteriorated somewhat over the past year," as the rate of mortgage holders falling behind in their payments continues to increase.
"The ratio of non-performing housing loans now exceeds its peak in the economic downturn that followed the (global) financial crisis," it said.
"Most households are comfortably making their current debt repayments, with the arrears rate low both by international standards and in absolute terms. But the rise in housing non-performing loans to its highest level in several years is notable."
A slowing economy could exacerbate problems for highly-indebted consumers and leave them reluctant to spend on anything beyond essentials.
"Rising unemployment or ongoing weakness in income growth would likely see an increasing share of households struggle to make their debt repayments."
"While the potential for direct losses to the banking system from high household debt seems limited, highly indebted households could curtail their consumption if there was a significant increase in job insecurity."
The central bank, which has cut the cash rate three times in 2019 with the stated aim of reducing unemployment, expressed its concern at the potential ramifications if sentiment dwindled.
"With around one-third of households having mortgage debt, in aggregate this could result in a sizeable decline in consumption and so amplify any shock to the economy and so the financial system."
The RBA urged banks to assist borrowers who had fallen behind.
"With the rise in housing loan arrears, lenders need to have appropriate processes in place to identify financially stressed households and, where feasible, help them return to a regular repayment schedule."
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