Major banks have until September to have systems in place for implementing any regulatory policy changes on home lending
The Australian Prudential Regulation Authority has warned major banks that they have until September to put systems in place for implementing any regulatory policy to limit growth in home loans to heavily indebted borrowers.
APRA chairman Wayne Byres said in a letter Tuesday that the new requirements aimed to strengthen the enforceability of future macroprudential responses to financial stability risks, The Australian reported.
“In the current environment, with high household indebtedness and rising interest rates, it’s essential for banks to prudently and proactively manage risks in residential mortgage lending,” Byres said. “APRA expects lenders to closely monitor housing lending risks to ensure that aggregate portfolio risks remain within their risk appetite and that standards for new lending remain prudent.”
The changes will come into effect starting in September, The Australian reported. They follow APRA’s release of data concerning risky residential mortgages for the March quarter. That data, released earlier this week, showed that the share of loans with debt-to-income ratios of more than six had risen to 23.1%, up from 18.9% a year ago.
Byres said that banks would be given notice of APRA’s intentions before any policy interventions. He also said banks would be given a month’s notice of the implementation of any lending limits.
“This is broadly consistent with APRA’s recent approach to increasing banks’ serviceability buffers,” Byres said. “Prior engagement with the Council of Financial Regulators would also be an essential prerequisite for initiating any macroprudential policy response … [this ensures] alignment, among financial regulators, on the assessment of the risk outlook and the need for a macroprudential policy response.”
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APRA rejected submissions from the banks asking for carve-outs for certain loan types from the reforms, The Australian reported. Some banks had maintained that construction loans should be left out of any prospective limits on high debt-to-income lending due to their role in driving housing supply and economic activity. Other lenders said that first-home buyers should be excluded from loan-to-value ratio limits.
APRA said that it would consider the broader impacts of those options with the Council of Financial Regulators at the time, The Australian reported.
“However, narrowing options today with specific carve outs, when future risks are not known, could reduce the effectiveness of APRA’s macroprudential policy toolkit,” Byres said.
