The corporate regulator has warned that growing competition and shrinking margins could push banks to dangerous extremes.
The Australian Securities and Investments Commission (ASIC) has issued a warning about risk-taking across the banking sector, cautioning that fierce competition and wafer-thin margins could drive lenders towards riskier strategies that may harm consumers.
The message was released by ASIC on Tuesday (27 January) in its Key Issues Outlook 2026, with the regulator outlining the major pressures reshaping the nation’s financial system.
ASIC chair Joe Longo said the regulator was monitoring a shift in market behaviour, which could see some banks and lenders stretching the limits of responsible conduct.
“Historic low net interest margins in banking may be driving parts of the sector towards riskier strategies,” Longo said.
He warned that ASIC is “alert to conduct that pushes regulatory boundaries to circumvent the application of the law that would lead to unfair investor losses and consumer harm.”
According to the regulator, competition in lending is intensifying as institutions seek growth in a market constrained by higher borrowing costs and subdued credit demand.
“The competitive dynamics at play in Australia could incentivise relaxed credit assessments, larger or unsuitable loans, product changes for lower‑margin customers, and aggressive marketing that steers consumers towards higher‑risk products,” Longo said.
While the issue has not been classified as an active enforcement priority for 2026, its inclusion in ASIC’s outlook indicates growing concern that competitive strain may compromise consumer safeguards.
The warning follows several years of stable policy settings aimed at curbing misconduct exposed during the 2018 royal commission, yet comes as banks face renewed pressure to maintain profitability amid slow credit growth.
Cost‑of‑living stress and shifting market structure
Longo also said ASIC was “tracking major shifts across Australia’s financial system as pressures on consumers, markets and businesses intensify.”
He pointed to the combination of continuing cost‑of‑living strain on vulnerable Australians, rising debt levels, and worsening global tensions as factors “adding volatility and uncertainty.”
“In 2026, continued cost‑of‑living strains for vulnerable Australians, rising debt and ongoing geopolitical tensions are adding volatility and uncertainty,” he said.
The regulator highlighted broader structural changes in market composition and governance as major issues in 2026, and the outlook also sounded the alarm on regulatory gaps arising as new participants – particularly in digital assets, payments, and AI‑driven financial tools – enter the market.
Longo also flagged the rapid expansion of retail investment into private credit markets, calling it a “double‑edged development.”
“Retail access to private credit and other private‑market products is expanding, with investment thresholds as low as ~$2,000,” he said.
“This raises risks of mis‑selling, unsuitable product selection, and decision making without adequate disclosure.”
APRA’s DTI lending curbs set to take force
The focus on banks comes as new curbs are set to come into effect.
From Sunday (1 February), banks must limit high debt-to income ratio to 20 per cent of new lending.
The Australian Prudential Regulation Authority (APRA) announced in late November that it would be bringing in new lending curbs for high debt-to-income (DTI) mortgage lending to “pre-emptively contain a build-up of housing-related vulnerabilities in the financial system”.
The changes will mean banks are now required to limit home lending of six times income (or more) to 20 per cent of their new mortgage lending.
The limit will apply separately to bank owner-occupier and investor lending.
Executive broker distribution at National Australia Bank (NAB), Adam Brown, told The Adviser that the bank remained “focused on helping Australians into homes in a responsible and sustainable way.”
“We continue to lend in line with APRA requirements and our credit policy to support customers on their home ownership journey,” Brown said.
Under the limit, each bank will be able to lend, on a quarterly basis, up to 20 per cent of new owner-occupier loans and up to 20 per cent of new investor loans to borrowers with a DTI ratio greater than or equal to six.
It will not apply to bridging loans for owner-occupiers and loans for the purchase or construction of new dwellings in order to allow for “the smooth functioning of property transactions and avoid constraining incentives for the supply of new housing”.
The new limit will not apply to non-bank lenders.
However, APRA said it closely monitors any “spillover effects”, including shifts of lending activity toward non-ADI lenders, to ensure the limit is achieving the intended objective of managing system-wide build-ups in risks.
[Related: APRA announces new lending limits]
