APRA loan restrictions will hurt small business

According to the regulator, this increased scrutiny has been in response to “an environment of heightened risks, reflected in an environment of high housing prices, high and rising household indebtedness, subdued household income growth, historically low interest rates, and strong competitive pressures”. 

APRA wrote to authorised deposit-taking institutions (ADIs) earlier this year, advising that it expects the banks to:

• limit the flow of new interest-only lending to 30 per cent of total new residential mortgage lending, and within that: place strict internal limits on the volume of interest-only lending at loan-to-value ratios (LVRs) above 80 per cent; and ensure there is strong scrutiny and justification of any instances of interest-only lending at an LVR above 90 per cent;
• manage lending to investors in such a manner so as to comfortably remain below the previously advised benchmark of 10 per cent growth;
• review and ensure that serviceability metrics, including interest rate and net income buffers, are set at appropriate levels for current conditions; and
• continue to restrain lending growth in higher risk segments of the portfolio (e.g. high loan-to-income loans, high LVR loans, and loans for very long terms).

APRA chairman Wayne Byres said that the new measures aim to “ensure lenders are recognising the heightened risk in the lending environment, and that their lending standards and practices appropriately respond to these conditions”.

“APRA views a higher proportion of interest-only lending in the current environment to be indicative of a higher risk profile," he said.

“We will therefore be monitoring the share of interest-only lending within total new mortgage lending for each ADI, and will consider the need to impose additional requirements on an ADI when the proportion of new lending on interest-only terms exceeds 30 per cent of total new mortgage lending.”

However, the executive director of the FBAA, Peter White, has criticised this push, stating: “It’s an arbitrary move. APRA has lumped everyone in the same basket, which means small businesses could have restricted access to appropriate styled debt.”

Speaking to SME Adviser's sister publication, The Adviser, earlier this month, Mr White elaborated: “A few weeks ago I met Prime Minister Malcolm Turnbull and touched on the unintended consequences of APRA bringing down the cap.

“He took quite a few notes on the discussion and agreed to the fact that one of the unintended consequences of bringing the cap down [has been] how that will impact small businesses. You have a lot of small businesses that leverage debt off their homes purely for business costs. If they can’t access the right types of debt, that has some enormous consequences to small business; you can’t afford to take on more staff, or take on any contract, or you may even have to reduce staff.”

Mr White also warned that another unintended consequence would be political, in that the impacts on small business “is going to hurt the government pockets because it has the potential to put more people on the dole if they can’t get work because businesses can’t afford to take people on”.

“The long-term problem is that more people [will be] leveraging off the government for the aged care pension because they weren’t able to create enough wealth to manage their own circumstances when they retire. So, there are a whole lot of issues being created for government.” 

Mr White suggests neither of these are good outcomes, especially for governments trying to reduce stress on budgets and expenses.

Instead, he told The Adviser that APRA “needs to segregate small business lending out and not have that as an impact into the cap”.

[Related: Brokers can achieve 50 per cent market share for business loans]