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Banks that grow their loan books faster than their competitors could be guilty of poor lending practices, according to APRA.
The prudential regulator of the Australian banking sector said a wise board would investigate if it found its loan book was increasing “at a rate materially faster than its competitors”, whether overall or in particular segments or regions.
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“Rapid relative growth could be due to an unintended deterioration in the [lender’s] loan origination practices, in which case APRA expects that [its] risk management framework would facilitate rapid and effective measures to mitigate any consequences,” APRA said.
Loans with LVRs above 90 per cent were also highlighted as a concern because they “clearly expose” banks to a higher risk of loss.
APRA said any lender whose business model depended on home loans needed a “robust management information and monitoring system” to manage risk.
Residential mortgages constitute the largest credit exposure in the Australian banking system and, for many lenders, well over half their total credit exposures, according to APRA.
Meanwhile, the MFAA has defended brokers after APRA claimed it was “seeing increasing evidence of lending with higher risk characteristics”.
MFAA chief executive Phil Naylor said brokers “follow strict rules” and are “subject to many checks and balances” when providing mortgages.
“Anecdotal evidence from lenders indicates that loans through brokers are of at least equal, if not higher, quality than proprietary channel loans,” he said.
“We expect that mortgage and finance brokers will continue to grow their share of the mortgage and finance market over the next year, while MFAA will continue to be vigilant in overseeing this fast growing industry.”
