These property falls assume that the downturns are only affect Australian mortgage holders (incorrect as China last week put a freeze on bank accounts avoiding tax by investing in Australian property), also a higher risk situation depends on the mortgage holders LVR, it also depends on the interest only loan component of their book (i think they said they had 13 billion exposure to this).
It also assume losses are held by the bank, which is not the case as they take collateral against the loan, so really the mum/dad/investor actually holds the risk and can be forced to sell to close the load, WBC holds the risk past the sale of asset only, not the whole principle etc.
So rate rises against this backdrop help insulate the banks overall risk position (not just against wholesale increases in the cost of money). The RBA has little room to move, so the banks now set the rates to protect their business, which is being done now across the board (so all banks are off-setting risk of loans). If the 'investors' cant pay the loan, then after time they are forced to sell and the bank can write off 'bad loans' which again happens over time. If property falls and this all happens, then the kick ons are felt through many parts of the economy, so if property goes and banks dont manage like this the AUS enters a recession for the first time etc
WBC Price at posting:
$27.80 Sentiment: Buy Disclosure: Held
(20min delay)