property perma bulls ignore articles like this

http://www.theaustralian.com.au/business/higher-rate-rises-and-credit-rationing-tipped-by-ubs-analyst/story-e6frg8zx-1225858111650

Higher rate rises and credit rationing tipped by UBS analyst
Richard Gluyas From: The Australian April 26, 2010 12:00AM

FUNDING constraints faced by the nation's banks are likely to cause credit rationing and interest rate hikes as the economy recovers, according to UBS.

The sobering outlook, in a 40-page report by banking analyst Jonathan Mott, predicts that if annual credit growth again hits 8.5 per cent, wholesale term debt issued by the banks will have to jump from $140 billion this year to more than $300bn by 2014 to fill the gap.

This is more term debt than the entire US banking system has issued since January last year.

Mr Mott concludes, after examining a number of scenarios on availability of term funding, that credit growth is likely to be limited to between zero and low single-digits. "This would lead to higher rates and credit rationing," he says.

Credit growth, which hit the mid-teens in the lead-up to the financial crisis, subsequently slumped as the domestic economy flirted with recession.


Among the banks, however, growth only slowed to around 4 per cent in 2009, as the industry took market share from the non-banks.

While housing lending is now slowing as the government stimulus is removed, demand for business lending is expected to pick up as investment programs are dusted off and deleveraging is scaled back.

In the meantime, problems arising from an over-reliance on wholesale funding will be exacerbated by a continuing inability to tap stagnant securitisation markets. On top of that, proposed reforms to expand banks' capital buffers and liquidity holdings could also constrain the supply of credit.

Under UBS's first scenario of strong credit growth of 8-9 per cent and availability of funding, the amount of new wholesale term debt issued in 2014 would balloon from $140bn this year to about $320bn.

The second scenario recognises there might be some kind of upper limit on the appetite of global investors for Australian bank debt, given that all four major banks are in the world's top-15 term debt issuers in the period since January 1ast year.

Westpac is the world's largest issuer of term debt as a percentage of assets, with Commonwealth Bank in third place and ANZ Bank in fifth position, just ahead of National Australia Bank.

Assuming a limit on the supply of debt, UBS calculates that credit availability will be "materially constrained", with credit growth capped at 3.5 per cent to 4 per cent from 2012. "Credit would then become a constraining factor on GDP," UBS says.

Other scenarios look even more bleak, leading the investment bank to conclude that the nation has to look at alternatives to fund credit growth and investment. Possible measures include tax breaks for deposits, covered bonds, corporate bond markets and changes to superannuation asset allocations.