No let up in APRAs scrutiny of banks' lending practices, says Wayne Byres
There will be no let up in the prudential regulator’s scrutiny of lending practices by banks as it wants to prevent a shock to their balance sheets and the economy in the event of a property market downturn. That is the clear message from Wayne Byres, the chairman of the Australian Prudential Regulation Authority.
In his remarks at CEDA’s 2017 NSW Property Market Outlook in Sydney, Byres said APRAs moves to put brakes on investor lending and other measures were meant to ensure that “standards for property lending are prudent, particularly in an environment of heightened risk”.
He said sound lending standards are “vital for the stability and safety of the Australian banking system, given their high exposure to both the residential mortgage and commercial property markets.
APRA’s intense scrutiny of lending practices would continue in the foreseeable future, he said.
Stressing that the ultimate goal was to protect bank depositors, because its their money that banks are lending, Byres said risk was an inherent part of lending.
He said while “the banking system is heavily exposed to the inevitable cycles in property markets… our goal is to seek to make sure the system can readily withstand those cycles without undue stress”.
Home loans account for about 60 per cent of banks' loans.
Byres said that the regulator’s moves to cap investor lending and other measures were “unusual”, but that they were driven by the view that “the higher-than-normal prescription was warranted in the environment of high house prices, high household debt, low interest rates, low income growth and strong competitive pressures”.
“In such an environment, it is easy for borrowers to build up debt. Unfortunately, it is much harder to pay that debt back down when the environment changes,” he said.
APRA has set a 10 percent annual growth for banks on lending to investors and and also set interest rate buffers when looking at loan approvals (the higher of 7 per cent, or 2 per cent over the loan product rate).
It recently also announced a limit of 30 percent on interest-only loans and warned that lenders exceeding its benchmarks risked incurring higher capital requirements to compensate for their higher risk.
He said those measures are having an impact now and have helped slow the growth in investor lending, and lift the quality of new lending.
Byres also noted that lenders not regulated by APRA “will still provide competitive tension in that area and it is likely that some business, particularly in the higher risk categories, will flow to these providers”.
And alluded to the warning to lenders that provide warehouse facilities to make sure that the business they are funding through these facilities was not growing at a materially faster rate than the lender’s own housing loan portfolio.
“We don’t want the risks we are seeking to dampen coming onto bank balance sheets through the back door.”
