Commercial lending in APRA cross hairs

“Most evidently at the moment, the emerging trends are revealing themselves in pending regulatory intervention in commercial,” he said.

Mr Vala added that regulatory action would pertain especially to bank lending, which was observed was “not consistently or well reported on.”

On 8 March APRA wrote to ADIs warning that many banks have fallen “well short of expectations” regarding portfolio controls for commercial property.

“Justifying lending decisions on the basis of ‘long-standing relationship’ or ‘good track record’ are insufficient, by themselves, to mitigate higher risk characteristics such as higher leverage or weaker pre-sale cover, especially if these are outside approved underwriting standards,” APRA said.

Regulation has been an ongoing theme this year. In March, APRA introduced new restrictions on interest-only lending to reinforce “sound residential mortgage lending practices in an environment of heightened risks”.

In the same month, ASIC released its report on broker remuneration, stating that the standard model of upfront and trail commissions could create a “conflict of interest”.

In June, ASIC also found a potential conflict of interest within the peer-to-peer lending sector, as loan origination fees made up 83 per cent of marketplace lenders’ revenue.

Thinktank’s Mr Vala further identified “on the nose” development and construction finance as an ongoing trend but highlighted that even standard loans are becoming increasingly difficult to fund for some borrowers.

He explained: “Serviceability threshold requirements are increasing noticeably and some of the banks are aggressively re-pricing and re-framing existing borrowers’ facilities.”

“We are… seeing a lot more selectivity from major finance providers when it comes to what types of lending they will take on.”