Australia's banks could handle a housing price fall of 40% and an 8% home loan default rate, according to preliminary results from Fitch Ratings' stress tests.
The ratings agency found banks would endure a maximum $10bn in losses in the third year of a severe housing crash and mortgage insurers would lose about $7bn.
Fitch began the stress tests in response to questions about the sustainability of Australia’s housing market and its ability to weather a fall out.
John Miles, director for financial institutions at Fitch, told members at a briefing in Sydney yesterday that “losses, even in the most severe scenario, are manageable”.
Fitch tested three scenarios – mild stress with mortgage defaults of 2.5% and 20% drop in home prices; medium stress with 6% defaults and 30% decline in prices; and severe stress with 8% defaults and a 40% price slump
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