Moody’s Says Outlook For Australian Building Societies Stable

Post by Sharat on May 25, 2010 · Under Business News, banking · Comment

Moody’s Investor Service the global credit ratings agency has reaffirmed the stable outlook for Australian building societies, as their depositor base continues to improve, and the Australian economic recovery remains solid.

Conservative business models, improved depositor bases and robust domestic market franchises all support an improved outlook for building societies during 2010, after many of them saw slowing loan and deposit growth in the previous year, Moody’s analyst David Yu said.

“Although loan and deposit growth slowed in 2008-09, we do see evidence for improvement in 2009-10,” he said.

Deposits by customers increased by 68 per cent of total funding across the entire sector during 2009, and according to the ratings agency a decline in unemployment would continue to support the sector’s credit quality.

Credit impairment charges for the sector were holding at extremely low levels, whilst asset quality was stabilising.

“The sector’s ratio of non-performing loans to gross loans of 0.2 per cent would need to quadruple before moving out of Moody’s highest asset quality category,” Moody’s said.

Moody’s added that cost cutting for the building societies would be key to maintaining profitability as higher funding costs and competition begin to make themselves felt.

Last week the industry association Abacus said that both building societies and credit unions had experienced a 30 per cent increase in new mortgage applications over the last 12 months.

According to the group nearly one in 10 Australian home owners had a mortgage held with a building society or credit union. Moody’s said the sector’s loan books were dominated by residential mortgages and remained vulnerable to rising interest rates.

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