Australia’s AAA rating is unlikely to be instantly affected by the deadly bushfires raging in the country, reported the S&P Global Ratings.
As per the leading credit rating agency, the country’s rating is not at immediate risk from the economic and fiscal impact of bushfires intensifying across the east coast.
In addition, the agency expects the ratings of the Australian states most ravaged by the fires - New South Wales and Victoria – to also remain unaffected. The expectation relies on the agency’s belief that there is enough capacity in its current ratings on the state and sovereign governments to soak up the fiscal costs, that are relatively small in comparison to their budgets.
Bushfires Expected to Raise Mortgage Arrears in Banks
The rating agency also expects the bushfire calamity to increase mortgage bad debts in the major Australian banks. The expectation is based on a likely rise in the unemployment rate in tourism and agriculture industries, which might face a flow-on effect from bushfires.
S&P believes that the mortgage arrears usually increase during the summer season, signalling the before- and after-Christmas expenditure and prolonged holiday season, prior to falling during the second quarter. In case, the intensity and longevity of bushfire seasons become a more constant occurrence, the agency expects the mortgage arrears to stay elevated for extended periods in drought- susceptible areas due to the bushfire devastation’s flow-on effect on local employment conditions.
As agriculture constitutes a large part of local employment in areas with drought conditions, the mortgage arrears are projected to remain high for a prolonged period of time.
Moreover, the rating agency expects the ravaging bushfires to put downward pressure on house prices in the affected areas. The property prices are likely to fall following the bushfire event, adversely affecting the ability to sell houses in less desirable areas.
The deadly bushfires have so far burned over 20 million acres of land, in addition to killing about 28 people and destroying around 2,000 homes. Moreover, the destructive bushfire has injured and taken lives of around millions of animals in Australia.
Westpac Announced to Pay-Off 1-Year Mortgages of Bushfire-Victims
A leading Australian bank, Westpac Banking Corporation (ASX:WBC) has recently confirmed that it will pay one-year mortgages for customers who got affected by the bushfire crisis in this season. Westpac’s Acting Chief Executive, Mr Peter King made the announcement public yesterday (13th January 2020).
Until the beginning of 2021, the bank will cover mortgage compensations of up to $1,200 a month for customers who lost their homes in the bushfires. However, the amount will only cover customers whose home value is less than $300,000. The policy is more likely to benefit people residing in regional areas of Australia, where median house prices are cheaper.
The bank’s recovery support package also provides access to zero-interest loans to customers, supporting them with rebuilding costs.
The recent initiative complements the bank’s previous measures, which involve the emergency grant of up to $2,000 for customers whose houses have been damaged or destroyed by the bushfires.
Westpac is ramping up efforts to help families directly affected by the country's gripping wildfire emergency. Besides these initiatives, the bank has also established a Bushfire Fund worth $1.5 million, targeted at supporting its customers, rural fire services and several associations helping with the recovery process.
Insurance Premiums Set to Surge from Bushfires
Disastrous bushfires are trigging speculation among market experts that insurance premiums will surge in bushfire zones as already the premiums are considerably higher in parts of the country at the maximum risk of natural disasters.
Australia bushfire insurance losses have soared to about $700 million with a substantial increase in the number of claims received by the insurance companies.
As per the S&P, since September 2019, the nation’s insurers have received more than 8,900 claims, which is further expected to rise in the coming days.
IAG received in excess of 2,800 claims related to bushfire (as at the close of 2 January 2020) since September. Out of these claims, over 1,500 were lodged since the beginning of December 2019, with most of them concerning with residential properties.
IAG expects the overall bushfire events to contribute in excess of $160 million of net claim costs in the 1st half of CY20, post-quota share.
In addition, SUN received over 2,600 claims related to bushfire since September, with an aggregate expected cost of between $315 to $345 million.
Both the insurance players have developed a comprehensive reinsurance program with improved natural hazard protection for the financial year 2020.
Market experts anticipate bushfires to cost about $5 billion to the Australian economy, weakening consumer confidence and harming farming and tourism industries directly. However, the actual aggregate economic damage from bushfires remains uncertain as the bushfire events still havr months to run.
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