Meanwhile, interest-only loans made up 43. 2 per cent of new loans in the latest quarter, above the 35. 7 per cent post-crisis average and the highest level on record. "Although investment and IO [interest-only] loans performed well during the global financial crisis, they inherently carry higher default probabilities and severities, and a larger proportion of such loans risks leading to higher delinquency levels for Australian banks at times of stress," Mr Serov said.
Moody’s senior credit officer Ilya Serov said the latest statistics from the Australian Prudential Regulation Authority highlighted an increase of investment loans and interest-only loans, posing a threat to the banking sector. "The increase in higher-risk lending is credit negative for Australian banks because it weakens the credit quality of their portfolios," he said.
Read more here: Business Spectator