Wayne Byres said scrutiny of bank culture will continue. Christopher Pearce
by James Eyers
The AFR 26/2/2018
The prudential regulator says it’s not yet declaring victory on macroprudential policy, suggesting bank loan limits will stay in place in the short term as banks bed down comprehensive credit reporting and continue to improve how they assess the ability of customers to service loans.
At a speech to the Citi A50 event in Sydney, Australian Prudential Regulation Authority chairman Wayne Byres said the quality of lending had improved given the number of interest-only loans had been cut sharply to one-in-five, after APRA last year introduced a benchmark that no more than 30 per cent of new lending be on interest-only terms.
But “while the direction in asset quality is positive, we’re not declaring victory just yet,” Mr Byres said. “We still want to see that the improvements the industry has made are truly embedded into industry practice.”
The comments come after Treasurer Scott Morrison last week described the lending limits as “completely malleable” and said they had been “very effective” in achieving a “soft landing” for the housing market.
They also follows those of Reserve Bank governor Philip Lowe at the same Citi event who said he saw some room for easing restrictions on investor lending in the future. “The housing market looks stable, borrowing patterns look more sensible. Things look less risky than they have for some time on the housing and borrowing front and I hope that continues,” Dr Lowe said.
APRA introduced limits in 2014 to keep the growth in lending to investors under 10 per cent. In recent months, house price appreciation has slowed in Sydney and Melbourne, and the rate
The Productivity Commission said this week that the limits were anti-competitive and had delivered a $1 billion annual profit windfall to the major banks.
Mr Byres said APRA might be willing to “modify our interventions as more permanent measures come into play”.
These include further strengthening borrower serviceability assessments, stronger capital requirements for mortgage lending being imposed by APRA, and a mandated comprehensive credit reporting regime.
The government released draft legislation on Thursday setting out fines for the big banks who fail to start providing a fuller picture of customers to credit bureaus, which Mr Byres has previously said will help banks assess credit.
“Through these initiatives, we are laying the platform to make sure prudent lending is maintained on an ongoing basis,” he said on Friday.
After APRA’s interim report into the cultural and governance shortcomings at Commonwealth Bank last week and the Banking Executive Accountability Regime passing parliament this week – and ahead of the first hearing of the financial services royal commission on Monday – Mr Byres said scrutiny on the bank’s culture by APRA will continue.
“What has become more apparent and pronounced over the past year is that – despite their financial health and profitability – community faith in financial institutions in Australia, as has been the case elsewhere, has been eroded due to too many incidences of poor behaviour and poor customer outcomes,” he told the Citi event, at which Mr Morrison is also launching the open banking regime.
Even though conduct matters are primarily the responsibility of the Australian Securities and Investments Commission, APRA is also interested in “what they say about an organisation’s attitudes towards risk”, Mr Byres said.
“So as with the balance sheet strengthening of the financial system over the past few years, we have also taken a greater interest in efforts to strengthen behaviours and cultures….. On these issues, it’s fair to say the journey continues.”