Regulator concerned by high risk mortgage lending
Banks are being warned against high risk lending by the Australian Prudential Regulation Authority (APRA), as house prices continue to grow in many markets across the country.
Launching the regulator's draft Prudential Practice Guide 223 Residential Mortgage Lending yesterday, APRA chairman, Dr John Laker, expressed concerns that banks were taking on increasingly risky loans in the face of growing competition between lenders.
Dr Laker urged authorised deposit-taking institutions (ADIs) to follow sound risk management practices for residential mortgage lending.
"In this environment, APRA is seeing increasing evidence of lending with higher risk characteristics and it does not want this trend to continue," he said.
"The draft prudential practice guide reinforces the importance of maintaining prudent lending standards when competitive pressures may tempt otherwise."
The draft guide — available on the APRA website — warned lenders against complacency, following the sustained period economic growth, low interest rates and rising house prices.
Under the draft guide, ADIs have been encouraged to adopt prudent practices in addressing housing credit risk with the institutions' risk management frameworks, to apply sound loan origination criteria and appropriate security valuation methods in the management of hardship loans, and to ensure they have a robust stress-testing framework.
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