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APRA is slowly increasing pressure on Australia’s banks despite an industry view that lending standards are sound.
The prudential regulator’s chairman, Wayne Byres, warned last week that “the current economic environment for housing lenders is characterised by heightened levels of risk”.
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Mr Byres said in his speech that although the banks have avoided the subprime lending activity that caused problems overseas, some are engaging in “less-than-prudent” mortgage practices.
Prudent ADIs (authorised deposit-taking institutions) should welcome APRA’s increased scrutiny since it would strengthen their capacity to compete without being reckless, he said.
“On the other hand, ADIs with more aggressive practices should fully expect to find APRA increasingly at their doorstep,” Mr Byres said.
Ballast chief executive Frank Paratore said there was no evidence that banks had been reducing their standards to win more business, although he added that APRA was right to be wary.
“The banks, I would suggest, would have a level of concern with regards to their appetite for certain areas,” he told The Adviser.
“Let’s assume that rates go up two percentage points over the next five years – where is that going to place lending to someone with an LVR of 95 per cent?”
ING Direct’s chief risk officer, Bart Hellemans, said APRA’s scrutiny was nothing more than the logical action of a prudential regulator. There was no reason to worry about the health or practices of Australia’s banking sector, he added.
“I think the banks to varying degrees do factor in the assessment and serviceability of unforeseen circumstances,” Mr Hellemans said.
“Banks themselves with their collateral, and as evidenced by all the stress testing we did last year, clearly show they have sufficient capital to protect depositors and investors.”
HSBC chief economist Paul Bloxham said the banking sector remains in a sound position, despite property price growth contributing to an increase of risk.
“What’s happening now is the appropriate work of the prudential regulator and that is to seek to try to manage risk that enters the financial system,” he said.
“The history of Australia shows that the cause of previous issues with loan defaults was largely a result of issues with lending standards, so it’s part of their role to make sure that lending standards are appropriate.”
[Related: APRA and ASIC ‘turning up the dial’ on banks]
