Not that Australian banks seem to need them, leader adds
Australian Prudential Regulation Authority chair John Lonsdale has given his assurance that the country’s 3% loan serviceability buffers are ready to withstand a credit growth decline, though he doubts the banking system will need them.
In an interview, Lonsdale called Australia’s banking system a “safe and stable” one, placing it “in a very good position” as it entered 2023. Lonsdale said Australia’s banks were supported by healthy levels of capital and liquidity, as well as a backbone of firm lending standards. Still, the regulating body was closely monitoring the loan serviceability buffers.
“We are looking at [serviceability buffers] very, very closely over the course of 2023, but at this point we are happy with where the prudential settings are,” Lonsdale said in an interview. “[The] system is in good shape and the prudential metrics are very sound.”
Lonsdale said that APRA’s view could change if the facts under scrutiny did.
Late in 2021, APRA raised the loan serviceability buffer from 2.5% to 3% as a precaution against heavily indebted borrowers. Banks are once again bracing for an increase in bad debts and loan losses this year, as fixed-rate mortgage borrowers who availed of record-low rates during the pandemic see their terms end and are forced back into interest rates 3% higher.
The looming mortgage cliff also coincides with the refinancing period, when banks fight to refinance borrowers and retain customers before they shop around, The Australian reported.
“These issues are difficult judgements and [there are] often big trade-offs associated with it,” Lonsdale said. “So take the serviceability buffer, for example. You increase the serviceability buffer. That provides more buffer for banks and for consumers should income change or expenses change or interest rates change, but on the other hand, if you increase the serviceability buffer by too much, you choke off credit.”
The recently appointed APRA chair’s comments foreshadow a report to be published within the next month detailing the stability of Australia’s prudential settings, Lonsdale said. They also come just in time for the outlining of the regulatory body’s 2023 strategic priorities.
“It’s probably a lighter policy agenda … [than] you’ve seen from APRA in other years, and that reflects a couple of things,” Lonsdale said. “We really want to set entities up to focus on the uncertainty for 2023, and we think that gives them a bit more space.”
Among other agendas, APRA will be reviewing banks’ use of non-operating holding company structures to grow their business into areas outside the sector and consolidations within the industry.
Earlier this year, it began to assess ANZ’s $4.9 billion takeover of Suncorp Bank in a controversial deal which raised concerns about reduced competition.
Lonsdale also noted that the increasing rationalisation in the credit union industry and among super funds revealed the benefits of larger-scale players, The Australian reported.
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