Commercial property lending hits hard in bust: RBA
Bankers are being warned to manage the risks associated with lending for commercial property purchases carefully, or face significant pain in a downturn.
Speaking at the University of NSW Real Estate Symposium 2015, Reserve Bank of Australia head of financial stability department, Luci Ellis, warned it was "possible to forget good credit risk management".
"Property development, including for residential property, and commercial lending related to property more generally, should receive sufficient attention from risk managers, policymakers and academics," she said.
"It is these segments of lending that tend to grow in importance in the late stages of a boom, and to account for a disproportionate share of loan losses in a bust.
"And if we are looking for surges in credit growth as precursors to painful downturns, we should bear in mind that, historically, these surges have been evident in business credit far more than in housing credit. That is certainly what we see in the Australian data."
AUTHOR
Nicholas O'Donoghue
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