According to Bloomberg:
"A 40 percent tumble in Australian house prices and a home loan default rate of 8 percent would be “manageable” for the nation’s banks and mortgage insurers, Fitch Ratings said.
Banks would see a maximum A$10 billion ($9.9 billion) of losses in the third year of a severe mortgage stress scenario and mortgage insurers would lose a little more than A$7 billion, John Miles and John Birch, directors for financial institutions at Fitch, said at a briefing in Sydney today. The findings are the preliminary results of a stress test announced last month...
Fitch’s analysis suggests “losses, even in the most severe scenario, are manageable,” Miles said. The three scenarios Fitch is testing are mild stress, with mortgage defaults of 2.5 percent and a 20 percent drop in home prices; medium stress with 6 percent defaults and 30 percent decline in prices; and severe stress with 8 percent defaults and a 40 percent price slump...
“In the case of the banks, loan-loss reserves and pre- provision, pre-tax profits are more than adequate,” Miles said in an e-mail. Rating changes are possible under severe scenarios, though less so for the banks, he said."
