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A report from analysts at UBS highlights just how focused Australian banks have become on real estate.

Looking at lending data from the Australian Prudential Regulation Authority, the UBS banking analysts Jonathan Mott and Adam Lee say the vast bulk of new loans have gone to property in the period since the US Federal Reserve launched its latest stimulus program – the so-called QE3 – in September 2012.

The analysts estimate that 95 per cent of lending growth has gone into residential or commercial property, with only 2.6 per cent of new lending, or $3 billion, going to non-property related business loans.

Credit growth has remained subdued over the period at just 6 per cent, but half of this new lending has gone to owner-occupied housing.

The boom in property investment has seen another 37 per cent of new loans going to residential investors.

The only strong area of business lending growth has also been in real estate, with commercial property loans accounting for 8 per cent of total credit growth.

The UBS analysts conclude that the concentration of bank loans into real estate is not a danger yet, but could cause problems later.

“We believe the changes to the banks’ loan books and further concentration into resi and commercial property are likely to lead to issues down the track,” the report cautions.

“However, near term, with ongoing improvements in asset quality, the banks’ earnings outlook remains robust.”

Story:   Michael Janda    Source:

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