Australians' private debt has soared to 187 per cent of income from 70 per cent in the early 1990s. While most are capably servicing their debts, a worsening of credit metrics has seen executives and analysts take a more cautious tone. It's also a key factor in the central bank's rate decisions this year, as RBA governor Philip Lowe places financial stability at the forefront of monetary policy. The concerns are understandable. Australians' private debt has soared to 187 per cent of their income, from about 70 per cent in the early 1990s, encouraged by low interest rates. In a November speech, Lowe said that while most households are managing these levels of debt, many feel they are closer to their borrowing capacity than they once were. The governor noted Australia's divergent housing market on Tuesday when the RBA left the benchmark cash rate at a record-low 1.5 per cent in its first decision of the year, saying conditions "vary considerably" around the country as prices in some markets continue to rise "briskly." Knocking out the wind

"There's so much household debt that a couple of rate hikes here would completely knock the wind out of the housing market, and a lot of people would be impacted by it," said Gareth Aird, economist at Commonwealth Bank.That's partly why he doesn't think the RBA will lift rates until 2018 at the earliest. The RBA might be starting to worry about Australia's growing debt pile. Credit:Robert Shakespeare While most borrowers in Sydney have plenty of equity in their homes as prices keep rising, that's not the case elsewhere. In the mining state of Western Australia, which is struggling to cope with the end of an investment boom, more than 10 per cent of mortgage holders have little or no equity buffer, according to a Roy Morgan report last week. In South Australia and Queensland, 8 per cent and 7.2 per cent of borrowers respectively are in negative equity. That may not matter if you're a homeowner with a secure job and comfortably servicing your mortgage. But Australia's labour market is far from solid, with the RBA citing it as one of the economy's biggest uncertainties. The jobless rate rose for the second straight month in December to 5.8 per cent, while underemployment -- the number of workers wanting more hours -- is near an all-time high. At the same time, wages growth is the lowest on record. Lenders are watching these indicators as closely as the RBA. After a seven year bull-run, annual cash earnings at Australia's big four banks fell last year for the first time since the financial crisis, said PricewaterhouseCoopers. At the same time, their bad debt expenses - which encompass both business and consumer lending - jumped 39 per cent to $5.1 billion, the highest since 2012.

But the hardest indicator to track may be borrowers worried about making their next repayment. Counsellors at the National Debt Helpline deal with such problems and are now even getting calls from property investors, said Guthrie. In the last quarter of 2016, phone calls to the service jumped 12 per cent on the previous year to an average 11,079 per month, she said. That's double the rate of increase of the same period a year earlier. Time to panic? It's not time to panic. Banks' losses still remain small by historical standards and are largely confined to mining areas, according to PwC. Some 77 per cent of customers at Commonwealth Bank were ahead on their mortgage payments as at June; the lender is likely to update those figures next week. The RBA also noted in November that borrowers have set aside funds tied to their mortgages equivalent to 17 per cent of outstanding balances. "Pockets of stress appear manageable in 2017 given the prevailing low interest rate environment," Citigroup banking analyst Craig Williams said in a January report. Those stresses though are increasing. Moody's Investors Service and S&P Global have both said that 30-day arrears on Australian mortgages packaged in securities they track are at multi-year highs. Unsurprisingly, the worst hit areas are in Western Australia, where 2.03 per cent of mortgages were in arrears, up 48 per cent year-on-year, S&P said in December. In New South Wales, the strongest economy, mortgage arrears were up 11 per cent.

ANZ chief executive Shayne Elliott said in November he saw "emerging signs of stress" in the economy, citing both households and small businesses. Citigroup's Williams pointed to potential areas of concern in apartment construction and unsecured personal lending when he said "the credit cycle has turned" last month. Loading "These warnings have to be taken seriously," said Harry Scheule, professor of finance at UTS business school in Sydney and an expert in credit risk, arguing that 30-day delinquencies are a forward-looking indicator. A "bust scenario may be unlikely, but it is within reach." Bloomberg