The banking regulator has revealed that its lending crackdown is working, and is hopeful of one day ending its intervention.
APRA chairman Wayne Byres said the further measures “to reinforce prudent standards” that the regulator took this year “appear to be having a positive impact”.
“As I have spoken about previously, serviceability assessments have strengthened, investor loan growth has moderated and high loan-to-valuation lending has reduced,” he said.
‘New interest-only lending is also on track to reduce below the benchmark that we set earlier this year. Put simply, the quality of lending has improved and risk standards have strengthened.”
Intervention always meant to be temporary
Mr Byres, who was speaking at the Customer-owned Banking Convention, said APRA would “ideally like to start to step back” from its current level of intervention.
“Quantitative benchmarks, such as that on investor lending growth, have served a useful purpose but were always intended as temporary measures,” he said.
“That remains our intent, but for those of you who chafe at the constraint, their removal will require us to be comfortable that the industry’s serviceability standards have been sufficiently improved and – crucially – will be sustained.
“We will also want to see that borrower debt-to-income levels are being appropriately constrained in anticipation of (eventually) rising interest rates.”
Standards fell to “lowest common denominator”
Mr Byres also used his speech to remind bankers about the risky lending practices that prompted APRA’s intervention.
“The erosion in standards has been driven, first and foremost, by the competitive instincts of the banking system,” he said.
“Many housing lenders have been all too tempted to trade off a marginal level of prudence in favour of a marginal increase in market share.”
This risky behaviour was “widespread”, because market competition forced lenders towards the “lowest common denominator”, according to Mr Byres.
“The measures that we have put in place in recent years have been designed, unapologetically, to temper competition playing out through weak credit underwriting standards,” he said.