The Australian Prudential Regulation Authority (APRA) has delivered a decisive blow to the banking sector, rejecting calls for a relaxation of prudential restrictions on home loans. Led by ANZ, major banks and their financial media cheerleaders had mounted a concerted campaign to loosen the regulatory grip on mortgage lending.
In its biannual assessment of the nation’s financial health, APRA underscored its commitment to maintaining the status quo. The regulator cited a complex interplay of economic factors including uncertain interest rates, elevated household debt levels, persistent inflation above the Reserve Bank of Australia’s target, and the ongoing geopolitical turbulence.
While acknowledging that the quality of new home loan lending remains robust and that arrears rates, though rising, are still below pandemic peaks, APRA deemed the current level of risk to the financial system sufficiently elevated to warrant the preservation of existing safeguards.
As a result, the countercyclical capital buffer for banks will remain at 1.0% of risk-weighted assets, and the mortgage serviceability buffer will continue to be applied at a stringent 3 percentage points. APRA also confirmed that it has not introduced any lending limits for banks or other financial institutions.
ANZ, the most vocal proponent of regulatory easing, has seen its campaign significantly undermined by a series of high-profile scandals. The bank's involvement in a $14 billion bond issue and subsequent revelations of data errors provided to the government have cast a long shadow over its advocacy efforts. Both internal and external investigations into these matters are ongoing.
APRA Chair John Lonsdale emphasized the regulator’s overarching objective of safeguarding the stability of the Australian financial system. He noted a moderation in home purchase credit growth from pandemic highs, but cautioned that high debt-to-income and loan-to-valuation ratio lending still account for a small portion of new lending. Lonsdale stressed the importance of prudent serviceability assessments in light of the uncertain economic outlook and the potential for increased cost-of-living pressures.
While acknowledging the relatively low level of non-performing loans, APRA remains vigilant in monitoring the situation. The regulator has indicated a willingness to adjust macroprudential settings if warranted by changing economic conditions.
The decision by APRA is likely to disappoint the banking industry, which has argued that tighter lending standards are stifling economic growth and homeownership aspirations. However, the regulator's stance reflects a cautious approach aimed at mitigating risks to the financial system and protecting consumers.
