APRA to maintain vigil on loans
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.