APRA has signalled that it would like to start scaling back its lending intervention measures once lenders could demonstrate that they would be more responsible than in the past.
In a speech delivered this week at the Customer-Owned Banking Convention in Brisbane, APRA chairman Wayne Byres said that an “erosion in standards” amongst lenders tempted to trade off a level of prudence in exchange for market share had forced the regulator to act to “temper competition playing out through weak credit underwriting standards.”
APRA, concerned about soaring household debt and over-leveraging by borrowers, capped investor lending growth for major banks at 10 per cent per annum to limit interest-only loans to 30 per cent of new residential mortgages.
[Related reading: Housing Affordability Makes Slight Improvement Following APRA's Restrictions]The APRA chairman said that a prudent lender would have tightened lending standards in the face of higher risk in an environment faced of high house prices, high and rising household indebtedness, low interest rates, and subdued income growth.
[Related reading: Bank ‘Blacklists’: A Classic Case Of Cutting Off The Nose To Spite The Face]Byres said that APRA would need to be comfortable that the industry’s serviceability standards have sufficiently improved and crucially, would be sustained.
“We will also want to see that borrower debt-to-income levels are being appropriately constrained in anticipation of (eventually) rising interest rates.”
The chief executive of financial services group MyState, Melos Sulicich, has come out requesting government intervention as he believes that these measures from APRA has “disproportionately constrained smaller banks’ ability to grow”.
Sulicich said that instead of creating competition, this regulation has provided larger banks an advantage with their typically larger investor loan portfolios than smaller banks as rates on investor and interest-only loans increased.
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