Powered by MOMENTUM MEDIA
the adviser logo
Lender

Banks warned about lending standards

by Nick Bendel4 minute read
The Adviser

Some banks may be letting big profits go to their heads by dropping lending standards, according to the Reserve Bank of Australia.

The Reserve Bank’s most recent Financial Stability Review, released earlier this week, initially praised lenders for maintaining consistent standards since late 2011.

High-LVR loans have remained at about 13 per cent, while low-doc loans have remained at less than 1 per cent.

The ratio of non-performing loans has also dropped from 1.9 per cent in mid-2010 to 1.2 per cent in December 2013.

==
==

However, the Reserve Bank also warned that some banks were expanding their new housing lending into borrower, loan and geographic segments that harbour greater risk.

“There are also indications that some lenders are using less conservative serviceability assessments when determining the amount they will lend to selected borrowers,” the review said.

“In addition to the general risks associated with rapid loan growth, banks should be mindful that faster-growing loan segments may pose higher risks than average, especially if they are increasing their lending to marginal borrowers or building up concentrated exposures to borrowers posing correlated risks.”

The banks remain highly profitable, with aggregate bank profit in the latest half-yearly results increasing 23 per cent on the previous year, according to the Reserve Bank.

“The major banks’ profitability was supported by a decline in their bad and doubtful debt charges,” it said.

“In addition, operating expenses declined slightly over the year to the latest half, compared with average annual growth of 7 per cent over the previous decade, as the major banks undertook a range of cost-cutting initiatives.”

default
magazine
Read the latest issue of The Adviser magazine!
The Adviser is the number one magazine for Australia's finance and mortgage brokers. The publications delivers news, analysis, business intelligence, sales and marketing strategies, research and key target reports to an audience of professional mortgage and finance brokers
Read more