APRA to main­tain vigil on loans

The Weekend Australian - - BUSINESS - GLENDA KORPORAAL

Aus­tralian Pru­den­tial Reg­u­la­tion Au­thor­ity chair­man Wayne Byres has warned banks that the reg­u­la­tor will con­tinue its con­trols on home lend­ing, say­ing that it is “not declar­ing vic­tory yet” on home loan qual­ity.

In a speech to the A50 Aus­tralian Eco­nomic Fo­rum in Syd­ney, Mr Byres yes­ter­day warned that the bank reg­u­la­tor would con­tinue to keep a close eye on home lend­ing prac­tices fol­low­ing stricter con­trols in­tro­duced in re­cent years.

“While the direc­tion in as­set qual­ity is pos­i­tive, we’ve not de­clared vic­tory just yet,” he said.

“We will want to see that the im­prove­ments the in­dus­try has made are truly em­bed­ded into in­dus­try prac­tices.”

Mea­sures in­tro­duced by APRA have in­cluded lim­its on new lend­ing to in­vestors in 2014 and a 2017 limit on in­ter­est-only loans to no more than 30 per cent of new lend­ing. The stricter con­trols have seen a sig­nif­i­cant fall in in­vest­ment loans as well as falls in in­ter­est-only lend­ing in the past year.

Mr Byres said only one in five new hous­ing loans was be­ing made on an in­ter­est-only ba­sis dur­ing the 2017 De­cem­ber quar­ter — a level that was within APRA’s guide­lines. “Our bench­mark of no more than 30 per cent of new lend­ing be­ing on in­tere­stonly terms is not overly re­stric­tive for new bor­row­ers,” he said.

He said APRA’s new guide­lines had also re­quired lenders mak­ing in­ter­est-only loans to “es­tab­lish strate­gies that gives bor­row­ers in­cen­tive to re­pay their prin­ci­pal”.

Mr Byres said the in­dus­try had been “quite suc­cess­ful” in cut­ting back in­ter­est-only lend­ing. The num­ber of in­ter­est-only loans with high loan-to-value ra­tios had also con­tin­ued to fall to “quite low lev­els”. He said: “All of that is pos­i­tive for the qual­ity of loan port­fo­lios.”

While APRA re­garded these re­stric­tions as tem­po­rary mea­sures to tem­per com­pet­i­tive pres­sures, he said the reg­u­la­tor would con­tinue to mon­i­tor the sit­u­a­tion.

“We can mod­ify our in­ter­ven­tions as more per­ma­nent mea­sures come into play,” he said.

He said this in­cluded fur­ther strength­en­ing as­sess­ments of the ca­pac­ity of bor­row­ers to re­pay their loans, strength­ened cap­i­tal ad­e­quacy for mort­gage lend­ing that had been im­posed by APRA, and the com­pre­hen­sive credit re­port­ing be­ing man­dated by the fed­eral gov­ern­ment.

“Through these ini­tia­tives, we are lay­ing the plat­form to make sure pru­dent lend­ing is main­tained,” he said.

Mr Byres said APRA would also con­tinue to mon­i­tor the cul­ture of the banks.

The reg­u­la­tor is be­ing given new pow­ers by the fed­eral gov­ern­ment, through the bank­ing ex­ec­u­tive ac­count­abil­ity regime, to over­see bank ex­ec­u­tives.

He said it was “crit­i­cal to the long-run health of the fi­nan­cial sys­tem” that the Aus­tralian com­mu­nity had a high de­gree of con­fi­dence that banks and other fi­nan­cial in­sti­tu­tions were well gov­erned and pru­dently man­aged. He said com­mu­nity faith in fi­nan­cial in­sti­tu­tions had been “eroded” by too many in­ci­dences of poor be­hav­iour and poor cus­tomer out­comes.

“None of these have thus far threat­ened the vi­a­bil­ity of any in­sti­tu­tion, but they have cer­tainly not been without com­mer­cial and rep­u­ta­tional dam­age,” he said.

Mr Byres said APRA was now tak­ing a “greater in­ter­est” in ef­forts to strengthen be­hav­iours and cul­tures.

“We can’t reg­u­late these into ex­is­tence, but we have been work­ing to en­sure Aus­tralian fi­nan­cial in­sti­tu­tions have been giv­ing greater at­ten­tion to those mat­ters than may have tra­di­tion­ally been the case,” he said.

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