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Growing disaster risk to credit quality
The risks of climate change and the “increasing frequency and severity” of natural disasters have highlighted growing risks to the credit quality of Australian mortgages.
Growing disaster risk to credit quality
The risks of climate change and the “increasing frequency and severity” of natural disasters have highlighted growing risks to the credit quality of Australian mortgages.
A report released by Moody’s investor Service has warned that natural disasters are increasing the risk of Australian residential mortgage-backed securities (RMBS), in light of the current bushfire crisis.
“The size and the scale of the bushfires are unprecedented, with around 11 million hectares burned and over 1,900 residential dwellings destroyed so far, but our rated RMBS have limited exposure to the affected loans,” said Alena Chen, Moody’s vice president and senior analyst.
However, the ratings agency added that at present, the number of homes destroyed by the natural disaster comprise of a “small proportion” of the overall residential housing stock in Australia, with exposure to loans on bushfire-affected properties “low” among the securities rated by Moody’s.
“We therefore expect that while mortgage delinquencies will increase in affected areas because of the economic disruption and damage caused by the fires, this will not materially hit RMBS portfolios,” Moody’s stated.
“Around 6.7 per cent of loans in RMBS we rate are on properties in fire-affected areas, but the actual share of loans that will be negatively affected by the fires – either because the underlying properties have been damaged or destroyed or because of the economic disruption caused by the disaster – is likely to be much smaller.
“Recent natural disasters have all had limited and temporary impact on the performance of our RMBS portfolio.”
The increasing frequency of natural disasters is also having an impact on Australia’s credit rating of both the federal and state governments, the agency said.
Moody’s said that over time, the frequency and severity of natural disasters related to climate change will be a recurring cost for Australia, although it added that the country currently has capacity to deal with such a crisis.
Currently, the Australian government has announced that it is committing an additional $2 billion over two years to set up a natural bushfire recovery agency.
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