Offshore bank investors fret about housing, says ANZ chief

London-based investors in Australia’s banks are fretting about the risk that several small and seemingly well-intentioned changes in housing market policies combine to create a sharp property market correction.

ANZ Banking Group chief executive Shayne Elliott, who has just returned from a week in London, said investors there are also worried that high levels of household debt have lifted housing market risk and that the government might seek to raise revenue from other sectors following the budget’s surprise bank tax.

The Australian banks rely on foreign investors to fund the $400 billion gap between domestic deposits and overall lending to the economy.

Speaking to The Australian Financial Review after a presentation to a G100 conference in Sydney, Mr Elliott said many institutional investors in ANZ’s debt and equity have a “heightened level of interest and concern” about Australian housing. Some view the prudential regulator’s speed limits as indicative of its caution, while others suggested high levels of household debt are making them nervous.

The budget introduced new limits to the way expenses can be deducted against negative geared properties. Mr Elliott said offshore investors had asked whether “a bunch of little tweaks” in the budget made it possible that these and additional small policy changes could conspire to hit housing prices.

Asked how he responded, Mr Elliott said: “We don’t think that that is the base case – but it is a risk. At the moment, what it appears is that, on the face of it, there is a lot of uncoordinated measures that are coming from all angles.

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“And if they are not thought through, there is always the problem that they conspire together to have an unintended outcome.”

UBS analyst Jonathan Mott told global clients of the investment bank on Thursday that even though the latest CoreLogic Home Value Index showed house prices in Sydney were 2.2 per cent below their mid-April peak, it was still too early to call a housing market correction.

Yet if prices continued to moderate during June and July, “the risk of a negative feedback loop may rise, especially as APRA’s macroprudential tightening of mortgage underwriting standards takes effect”, Mr Mott warned.

Oligopoly comment ‘unhelpful’

ANZ had tried to adopt a conciliatory approach since the budget, but “I think the comments about the oligopoly are unhelpful”, Mr Elliott said. Treasurer Scott Morrison, in his speech introducing the bank tax on Tuesday, described the big banks as an oligopoly which used significant pricing power to the detriment of Australians.

But Mr Elliott said Australia’s banks are actually less concentrated than many other domestic industries and “it is the nature of a small economy to have, on the face of it, concentrations. If you think about airlines, supermarkets, energy companies, mining companies, it is a concentrated country.

“So I don’t know that [the Treasurer’s comments] are necessarily very helpful.”

It was “fair and reasonable” the legislation introducing the bank tax had enshrined the basis point rate in law. This “doesn’t stop it changing, but it puts some accountability on explaining to the public why.”

Mr Elliott also welcomed concessions such as derivatives being dropped from the taxed liabilities. “We have tried to have a constructive debate with Treasury pointing out practical implementation issues with the levy, like the derivatives one, so it is good to see they have listened on a few of those things.”

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All the banks are likely to lean on their 200,000 staff to engage with the public more positively about the role banks play in the economy and community, he said. “That is our best answer for this, I think – using our branch networks and relationship people in the industry to be outspoken about what they do.”

ANZ chief financial officer Michelle Jablko has also been meeting offshore investors, visiting the United States the week before last. Institutional investors based offshore own 27 per cent of ANZ’s shares.

Mr Elliott also used his time in London to be briefed on the UK’s “open banking” initiatives; the federal government said in the budget a similar regime would be introduced in Australia.

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