APRA intervention still causing headaches for banks

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While future cuts to Australia’s official cash rate by the Reserve Bank of Australia (RBA) have been widely predicted, borrowers shouldn’t be holding their breath that they will be passed on by lenders as Australia’s banks continue to try and their footing post the Australian Prudential Regulation Authority’s (APRA) intervention last year.

Australian Bureau of Statistics (ABS) figures released this week revealed that the regulator’s crackdown has proved to be effective in slowing the growth of the investment loan books of Australian lenders. $138.2bn worth of new investment loans were written in the year to June 30 2016, 14.9% lower than the $162.2bn written over the previous 12 months.

Updated requirements about the amount of capital banks have to hold against their mortgage books have been used by some lenders to defend not passing on the full extent of recent RBA rate cuts and out of cycle rate rises, but Philippe Brach, chief executive officer of Multifocus Properties & Finance, said banks are simply putting the needs of shareholders ahead of borrowers.

“Their primary objective is to make money for their shareholders. All of a sudden APRA came in and said they can’t do this or that. The banks had to slow their lending but they still need to make a profit,” Brach told Your Investment Property.
“The only method they have is to increase their margins and that’s why they aren’t passing on the full RBA rate cuts. It’s not because of an increased cost of funding, that’s rubbish. They need to find more profit for their shareholders,” he said.

While the immediate period after APRA’s action saw lenders severely tighten their lending policies, particularly for investors, Brach said many have loosened them now, but borrowers now face new challenges.

“The challenge is that they keep changing the rules. Every week, every day lenders are telling us that they’re changing this policy or that policy. It used to be they would make a change once a month or once every three months, but now it’s almost daily,” he told Your Investment Property.

“The banks are still trying to find their way through the new lending landscape. APRA’s intervention was something that was fairly new. In the past they were pretty loose and let the market dictate what was happening, the fact that APRA actually forcibly entered the market is something that was new

“They’re constantly tweaking their policies so they can optimise their margins and profit. They’re still trying to find their footing in the new environment.”

In Brach’s opinion, the fact that policy changes have become so common has led to a lending market place that borrowers are unlikely to be able to fully navigate on their own.

“There’s a true difference between lenders now, when you do a borrowing assessment for somebody now their borrowing capacity could range from $300,000 to $900,000 depending on what bank you go to.

“It’s certainly forced the broker market to do work harder to find the most competitive rate for their clients. It’s much more complex now and I think you’d be crazy to go without broker.”

Despite the complications it has bought, Brach said APRA’s intervention on the whole has been a positive.

“I don’t think APRA had in mind any particular type of investor when they [stepped in], they were more interested in just making the banks more solid.

“In the process, people who were border line are probably not investing and I think that’s probably a good thing. If you are border line in the current environment when interest rates are low, then it’s brilliant.

“But if you’re border line now, what happens when interest rates go up eventually in five, six or seven years?”

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