APRA: Banks must continue counting student loans, no cut to lending limits

The nation’s two peak regulators have warned about risks to the financial system.

APRA chairman John Lonsdale. Picture: John Feder

Australia’s prudential regulator remains concerned about the country’s high household debt, saying it won’t relax borrowing limits and continues to expect lenders to count student loans.

In a statement to the Senate economics committee, Australian Prudential Regulation Authority chair John Lonsdale said despite owner-occupier mortgages topping $1.5 trillion, lending continued to borrowers who could “meet their repayments”.

“At 190 per cent of incomes, household debt remains high, both compared with long-term trends and relative to international peers,” he said.

Mr Lonsdale said first-home buyer borrowing remained “around its long-term average” but there had been a rapid rise in investor lending and a strengthening of business borrowing.

The APRA chair, who heads the agency charged with stabilising the banking, insurance and superannuation sector, said Australia’s financial system faces a “complex and uncertain” year.

But Mr Lonsdale poured cold water on calls to ignore student debts when assessing home loans, a move suggested by the Albanese government.

Treasurer Jim Chalmers on February 11 directed APRA to update its lending rules, including a move that would relax the treatment of student loans, allowing banks to overlook the HECS-HELP debts.

Mr Lonsdale said APRA would continue expecting banks to consider repayments in serviceability assessments.

But he said APRA was working to update its lending standards, allowing some banks to strip out the cost for some borrowers who “expected to pay off their HELP debt in the near term”.

“APRA also proposes to exclude Higher Education Loan Program debts from debt-to-income reporting,” Mr Lonsdale said.

The APRA chair said the regulator had no plans to change its 3 per cent serviceability buffer, where borrowers are assessed on their ability to repay loans 3 per cent more expensive than current levels.

“The risk of shocks to household incomes from weak economic growth remains prom­inent,” Mr Lonsdale said.

“Given relatively high household debt in Australia, we are carefully watching developments in credit growth, including in response to interest rate changes.”

ASIC chair Joe Longo. Picture: NewsWire/Martin Ollman

The Australian Securities & Investments Commission, also addressing the Senate economics committee, warned of the dangers around retail investors piling into unlisted speculative property players, or buying risky crypto products.

ASIC chair Joe Longo said cryptocurrency assets were “highly speculative”, noting the regulator’s latest enforcement moves reflected the increased financialisation of the sector.

ASIC has required crypto companies and coin-issuers to apply for an Australian Financial Services Licence.

Mr Longo said he “can’t be any clearer to the general public, this activity is highly risky”, but that didn’t mean crypto assets should be prohibited. “Crypto related assets have led to very significant losses for investors,“ he said. “I do intend to apply the law as it is.”

Originally published as APRA: Banks must continue counting student loans, no cut to lending limits