Investors are set to benefit after the Australian Prudential Regulation Authority (APRA) announced plans to remove the investor loan growth benchmark, which it had previously set at 10 per cent in 2014.
The 10 per cent benchmark on investor loan growth was a temporary measure, said APRA Chairman Wayne Byres, and was introduced as part of a range of actions to reduce higher risk lending and improve practices.
In the four years since the cap was introduced, Byres said authorised deposit-taking institutions (ADIs) had taken steps to improve the quality of lending, raise standards and increase capital resilience.
“The temporary benchmark on investor loan growth has served its purpose. Lending growth has moderated, standards have been lifted and oversight has improved,” he said.
“However, the environment remains one of heightened risk and there are still some practices that need to be further strengthened. APRA is therefore seeking assurances from ADI Boards that they will maintain a firm grip on the prudence of both policies and practices.”
APRA’s announcement comes in the wake of the Royal Commission into financial services, which has already revealed widespread instances of fraud and bribery, delays in responding to regulatory concerns, and oversights and inappropriate lending practices among the big four banks.
Byres told the House of Representatives economics committee this week that there has been a “general sloppiness” in bank processes, in pursuit of being competitive, which is why APRA stepped in.
“We had too many borrowers who just didn’t pay a cent back on their loan and that is unhealthy in the long run,” Byres said.
APRA’s scrapping of the investor growth cap will apply only when each individual ADI’s board is able to provide assurance on the strength of their lending standards.
Byres confirmed that for the 10 per cent benchmark to be removed, Boards will be expected to confirm that:
• lending has been below the investor loan growth benchmark for at least the past 6 months;
• lending policies meet APRA’s guidance on serviceability; and
• lending practices will be strengthened where necessary.
For ADIs that do not provide the required commitments to APRA, the investor loan growth benchmark will continue to apply.
“In the current environment, APRA supervisors will continue to closely monitor any changes in lending standards. The [30%] benchmark on interest-only lending will also continue to apply,” Byres said.
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