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APRA and ASIC 'turning up the dial' on banks

by Nick Bendel11 minute read
The Adviser

Banks have been warned that regulators are targeting "higher-risk mortgage lending" as they look to maintain sound mortgage lending practices.

APRA announced yesterday that it had written to Australia's lenders to inform them the regulator would further increase the level of supervisory oversight.

However, in a move that would have caught many observers by surprise, APRA said it was not currently considering the introduction of macroprudential tools.

APRA instead said it would keep a close eye on "higher-risk mortgage lending", such as high-LVR loans, interest-only loans to owner-occupiers and loans with very long terms.


The regulator also said it would closely monitor banks that recorded strong growth in their investor books.

Banks that are "not maintaining a prudent approach" may be told to increase their capital holdings.

Meanwhile, ASIC announced at the same time that it will be investigating interest-only loans.

"The review follows concerns by regulators about higher-risk lending, following strong house price growth in Sydney and Melbourne," ASIC said.

HSBC chief economist Paul Bloxham described APRA's announcement as a form of incremental change rather than a wholesale rethink of prudential policy.

"APRA has been gradually turning up the dial in terms of its prudential settings for residential mortgages and this is another step along the way," he told The Adviser.

Mr Bloxham said Australia was experiencing a "normal-looking house price cycle" and that there was no evidence to suggest there had been an excessive rise in high-LVR lending.

"The strongest part in the growth in lending that's going on at the moment has been the growth in lending to investors," he said.

"Typically, investors have lower LVRs than first home buyers because they have more equity. So actually we haven't seen that this housing boom has been driven by lots of high-LVR loans."

FBAA chief executive Peter White said ASIC's concern over interest-only loans was a surprise given that he had not heard of any lenders raising the alarm.

"Maybe they've got some statistics that are showing otherwise and that haven't been publicly released," he said, "but under normal, prudent lending guidelines that we've had for quite some time, I don't see they're a risk at all, especially when you're a real estate investor and you're buying and selling all the time."

Mr White told The Adviser that yesterday's announcements by the two regulators were probably their way of trying to drive change without resorting to direct intervention.

"They're reminding lenders to make sure they keep their portfolios balanced and make sure they keep their LVRs in check," he said.

"Maybe the banks haven't been keeping a check on these things and so some portfolios might be a little weighted one way or the other, but I don't think there's a market issue."

[Related: Why APRA and the RBA are looking at Switzerland]