Chairman Wayne Byres says 10% cap will stay but the regulator plans further intervention which will impact the biggest banks’ lending
Chairman Wayne Byres says 10% cap will stay but the regulator plans further intervention which will impact the biggest banks’ lending
APRA Chairman Wayne Byres has announced that further capital ratio changes are on the way, which would impact housing lending and the major banks in particular. In a speech at the AFR Banking and Wealth Summit in Sydney yesterday, Byres noted that “we also developing a more strategic response that recognises that, in the Australian banking system, housing lending risks and capital adequacy are far from independent issues.”
APRA would release an information paper in July, which would outline how much capital ratios should be raised for banks and over what timeframe. Whilst Byres argued there would not be a ‘dramatic’ increase in capital ratios, changes to risk weighting have already driven several out-of-cycle rate hikes for investor and owner-occupier borrowers and could cause further rate increases.
Capital requirements for banks have tripled since 2007, whilst profits have doubled, according to JP Morgan
It seems likely lending to investors will continue to be targeted, with Byres commenting that: “beyond establishing the aggregate level of capital, we will need to follow that up with consultation on how the regulatory framework should allocate that capital across the different types of risk exposure.” Restrictions on the use of internal credit models would particularly impact the lending ability of the biggest banks, Byres added.
In his speech, Byres also defended APRA’s current 10% growth cap on investor lending: “we chose not to lower the investor lending growth benchmark at this point in time, given the need to accommodate the increasing supply of housing in the construction pipeline.”
Nevertheless, Byres explained, in recent months many banks were currently growing investor lending at above the 10% limit and would be forced to pull back: “even with the benchmark unchanged, lenders are still likely to have to tighten their lending practices and slow lending from that in recent months to ensure they remain comfortably below the desired level.”
Byres’ comments come just days after mutual bank CUA halted lending to investors out of concern it would breach the 10% limit.
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APRA Chairman Wayne Byres has announced that further capital ratio changes are on the way, which would impact housing lending and the major banks in particular. In a speech at the AFR Banking and Wealth Summit in Sydney yesterday, Byres noted that “we also developing a more strategic response that recognises that, in the Australian banking system, housing lending risks and capital adequacy are far from independent issues.”
APRA would release an information paper in July, which would outline how much capital ratios should be raised for banks and over what timeframe. Whilst Byres argued there would not be a ‘dramatic’ increase in capital ratios, changes to risk weighting have already driven several out-of-cycle rate hikes for investor and owner-occupier borrowers and could cause further rate increases.
Capital requirements for banks have tripled since 2007, whilst profits have doubled, according to JP Morgan
It seems likely lending to investors will continue to be targeted, with Byres commenting that: “beyond establishing the aggregate level of capital, we will need to follow that up with consultation on how the regulatory framework should allocate that capital across the different types of risk exposure.” Restrictions on the use of internal credit models would particularly impact the lending ability of the biggest banks, Byres added.
In his speech, Byres also defended APRA’s current 10% growth cap on investor lending: “we chose not to lower the investor lending growth benchmark at this point in time, given the need to accommodate the increasing supply of housing in the construction pipeline.”
Nevertheless, Byres explained, in recent months many banks were currently growing investor lending at above the 10% limit and would be forced to pull back: “even with the benchmark unchanged, lenders are still likely to have to tighten their lending practices and slow lending from that in recent months to ensure they remain comfortably below the desired level.”
Byres’ comments come just days after mutual bank CUA halted lending to investors out of concern it would breach the 10% limit.
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Applications for MPA Top 10 Franchise and Top 10 Independent Brokerage reports close THIS FRIDAY. Get your brokerage recognised in the magazine and online, based on a combination of factors; not just volumes. It takes 2 minutes to apply online: http://www.keymediasurvey.com/MPA/TopBrokerages2017/
