Crackdown not aimed at home prices: APRA

Investment risk and uncertainty in the real estate housing market

Jason Cadden

Sydney

(Australian Associated Press)

The banking watchdog denies its crackdown on loans to housing investors was imposed to rein in soaring prices, but rather to improve lending standards.

Australian Prudential Regulation Authority chairman Wayne Byres said he was concerned that intense competition among lenders would lead to standards being eroded.

As a result, APRA took steps to rein in the number of loans being issued, including seeking to set a 10 per cent `speed limit’ for banks on investor loan growth.

“It’s often seen as some response to house prices. We’ve never said that is what we’re trying to target. Indeed, it’s impossible for APRA to target, or set, or even opine on what is the right level of house prices,” Mr Byres said on Wednesday.

“We were just trying to get people to get their foot off the accelerator a bit because it was a means to preserve lending standards.”

He said a 10 per cent limit on investor lending growth shouldn’t be too much of an imposition for banks, but would ensure lending didn’t get out of hand.

“Ten per cent growth is still, actually, a very healthy rate of growth in credit portfolios. It would still be the fastest growing part of the banks’ loan books,” he told the Actuaries Institute Banking on Change Seminar.

Mr Byres said that if loan growth got too hot then funding sources may become less reliable.

And, while Australian banks and other lenders had mostly turned to more reliable sources of funds in the aftermath of the GFC, reliance on overseas funding has not materially fallen, he added.

The financial system inquiry (FSI), chaired by David Murray, identified this funding as being most risky, because it could disappear in a crisis.

“The FSI’s unquestionably strong recommendation was recognition this has been a key vulnerability in the past,” Mr Byres said.

The APRA chairman reiterated the regulator’s belief that the main way to improve the stability of the financial system was to change company cultures.

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