ANZ's push to grow its share of the mortgage market has seen its loan-to-income ratio increase to 6.3 times compared with an industry average of 4.9 times, according to a Morgan Stanley survey.
Banking analyst Richard Wiles said ANZ has the highest average loan to income ratio at 6.3 times followed by Bank of Queensland at 5 times, Westpac at 4.9 times, National Australia Bank at 4.7 times, Commonwealth Bank at 4.4 times and Bendigo and Adelaide Bank at 4 times.
"We think this reflects ANZ's push to grow its mortgage book and gain share in New South Wales, as well as more ANZ customers purchasing at close to peak prices with 45 per cent buying in the last two years versus 35 per cent survey average," he said in a client note.
"Regulators are increasingly concerned about household debt growing ahead of incomes and have indicated that LTI should become part of loan underwriting criteria."
Against this backdrop, NAB recently announced that it will cap the LTI at 8.0 times for new Australian mortgages.
"This increases our conviction that LTI limits, alongside existing macro-prudential measures, will weigh on volumes," the analyst told clients.
The banking specialist said while he remains unconcerned housing loss rates, the profile of ANZ's customers in the survey suggests headwinds to lender’s current mortgage growth strategy.
Moreover, he worries that ANZ's 2017 second half earnings will disappoint.
Now, he is expecting Westpac to post a 2017 second half cash profit of $4.15 billion – a 3 per cent rise on the half.
Wiles is also forecasting similar earnings growth for National Australia Bank which should log a cash profit of $3.39 billion for that period.
But for ANZ, the analyst is forecasting second half cash earnings of $3.46 billion.
“This implies earnings of $1.67 billion in the 2017 fourth quarter - down from $1.79 billion in the third quarter due to higher loan losses. “
“We expect housing loan growth to slow, margin pressure to re-emerge and pressure on household cash flow to lead to higher loan losses.
"As a result, we forecast no earnings-per-share or dividend growth and an average return-on-equity of 13 per cent for the major banks in2018, with risk to the downside.”
Morgan Stanley is forecasting system growth to slow to 4 per cent in 2018.
New central bank figures show lenders’ mortgage balances have been growing steadily at an annual rate of more than 6 per cent for most of this year.
Owner-occupier balances grew by 6.3 per cent over the year to August and investor mortgage balances grew by 7.3 per cent over the 12 months.