APRA signals next target in real estate lending crackdown

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Commercial real estate lending could soon face similar restrictions to that of the residential sector as regulators switch their focus.

After stepping in to slow the growth of residential investor lending last year, it appears the Australian Prudential Regulation Authority (APRA) has similar concerns about the growth of lending for commercial real estate purposes.

According to a report in The Australian, APRA executive general manager for supervisory support, Charles Littrell, told the audience at a Centre for International Finance and Regulation event in Sydney last week that the regulator will begin to take a closer look at the commercial lending sector.

“In 1990 the four major banks had 40% of the banking market; now they’ve got 80%,” The Australian reported Littrell as saying.

“They’re all in the same business model, they’re all hugely ­exposed to each other ... and we don’t quite know what would happen if that business model gets whacked by external stress all at once. So there is a lot of conventional work at our end ­focusing on sound lending and in fact now we’re dialling up our systemic supervisory focus on commercial real estate,” Littrell reportedly said.

According to The Australian, Littrell said commercial real estate lending is usually what “goes wrong” for the Australian banking sector and that APRA is concerned that growth in commercial loans is currently in double digit territory.

Last year APRA mandated that the investor loan books of Australian banks should not grow by more than 10% per annum.

Speaking at the same event, Reserve Bank of Australia head of financial stability, Lucy Ellis, backed Littrell’s stance that the commercial sector is a more likely element of risk for the Australian banking system than the residential market.

“The thing that has tended to be the causal agent in a banking crisis, even though you saw something go wrong in housing prices, it was the property developers, it was the commercial real estate, these are the vectors of distress,” she said, according to The Australian.

While Littrell said there needs to be more focus on commercial lending he applauded Australian lenders for taking a harder stance on foreign borrowers, even though the moves may have come a little later than they should have.

“We are a couple of years behind where we maybe should have been (with that),” he said.
 

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