RPT-UPDATE 1-Australia mortgage arrears to rise, but stay low

(Repeats to add UPDATE 1 tag) (Adds detail)

By Wayne Cole

SYDNEY, Aug 13 (Reuters) - Australia's slowing economy is likely to lead to a rise in the current low levels of mortgage arrears but they should still remain well below those of many other countries, a top central banker said on Wednesday.

Philip Lowe, Assistant Governor at the Reserve Bank of Australia (RBA), also gave a clean bill of health to the country's banking system and shot down calls for official help for the home loan market.

In a speech to a retail finance conference, Lowe noted that just over 0.4 percent of Australian banks' mortgages were more than 90 days in arrears, while arrears on loans that had been securitised were at 0.55 percent.

"These figures have increased from the very low levels seen between 2002 and 200, and are likely to increase further with the economy slowing, but remain considerably below comparable figures for many other countries," said Lowe.

He noted that in the United States around 2.2 percent of banks' residential mortgages were non-performing. In the UK, around 1.3 percent of the number of loans was in arrears by 90 days or more.

Lowe said the banks' ratio of non-performing assets to total assets also remained low by both historical and international standards, at 0.56 percent.

"While some banks have had to make increased provisions against loans to borrowers with complicated and leveraged financial structures, the banks' broader business loan portfolios are continuing to perform well," said Lowe.

Some of Australia's major banks had surprised investors recently by disclosing sizeable writedowns on bad loans.

Lowe noted that banking analysts expected some decline in overall profits because of bad loans, but even so the system would remain profitable and well capitalised.

"The Australian banking system remains highly profitable by international standards," said Lowe.

Over the most recent six-month reporting period, profits after tax and outside equity interests for the five largest banks were up 12 percent on the level of a year earlier, and were double those of five years ago.

In contrast, profits in the United States and Europe were down around 70 percent. Lowe noted Australia's aggregate regulatory capital ratio was around 10.5 percent, while the four largest banks were all rated at a high AA.

"It is notable that amongst the largest 100 banks in the world, there are less than a handful with higher ratings than those of the large Australian banks," he said. Lowe played down the need for government assistance in the mortgage market.

As in many other countries, Australia's mortgage market has been pressured by the global credit squeeze, which has pushed up the cost of funding for banks and non-banks alike.

Non-banks in particular have found it hard to raise funds and as a result their share of the mortgage market has dived to just 4 percent, from 13 percent in the middle of last year.

The market for securitised mortgages had dried up, leading for industry calls for the establishment of an agency that would package mortgages into government-guaranteed debt.

Lowe, however, argued that the mortgage's market's troubles were cyclical rather than permanent.

"The Reserve Bank does not see a case for permanent government intervention in the mortgage market," he said.

"While the availability of finance has tightened up recently, over the longer term we do not expect that a shortage of housing finance will be one of the problems that Australia will have to confront," he said. (Reporting by Wayne Cole; Editing by James Thornhill)