APRA cautions on home lending practices
Australia's major banks have been told that they need to remain vigilant on the appropriateness of their mortgage lending practices amid the continuing house price boom in Sydney and Melbourne.
The warning has come from Australian Prudential Regulation Authority chairman, Wayne Byres, who has told an industry forum in Sydney that recent regulatory scrutiny and hypothetical excerises had indicated there was room for improvement, albeit Australian lending institutions were not as poorly placed as some of their overseas peers.
"… Australian approved deposit-taking institutions (ADIs) are thankfully well away from the types of sub-prime lending that have caused so many problems elsewhere (e.g. lending with an LVR in excess of 100 per cent, at teaser rates, to borrowers with no real capacity to repay)," he said. "Nevertheless, our overall conclusion from this hypothetical borrower exercise was that there were clearly examples of practice that were less than prudent."
Byres said that, as a result, APRA had shown ADIs that participated in the exercise how they compared to their peers and where their serviceability assessments could be strengthened.
"In doing so, we have been asked whether APRA is trying to standardise mortgage risk assessments or impose a common ‘risk appetite' across the industry," he said. "In fact, we do think it important that ADIs adhere to some minimum expectations with respect to, for example, interest-rate buffers and floors, and adopt prudent estimates of borrower's likely income and expenses."
"In that regard, to the extent we are reinforcing a healthy dose of common sense in lending standards, greater convergence is probably warranted," Byres said.
The APRA chairman said lending standards were important for the stability of the Australian banking system, and given the importance of housing-related lending, it should not be surprising that APRA supervisors were increasingly vigilant on the risks such lending presents.
"Put simply, if all our eggs are increasingly being placed in one basket, we need to make sure the basket isn't dropped," Byres said.
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