APRA ‘happy’ with home-lending boom as new prudential plan revealed

Australia’s runaway house prices are not cause for alarm for the prudential regulator, with the agency revealing there were no plans to limit lending to investors despite a recent surge.

APRA chair John Lonsdale. Picture: Chris Pavlich

Australia’s runaway house prices are not cause for alarm for the prudential regulator, with the agency revealing there were no plans to limit lending to investors despite a recent surge.

Unveiling its new to-do list on Wednesday, the Australian Prudential Regulation Authority outlined plans to roll up its banking and general insurance functions into one mega-unit, alongside a suite of new measures focused on risk management across the finan­cial sector.

But APRA chair John Lonsdale said the regulator, which sets lending limits for the banking sector, was not concerned about the latest housing surge with prices lifting 6.3 per cent over the year led by rises in capital cities.

APRA recently moved to hold its serviceability buffers at 3 percentage points above the reference rate, requiring banks to assess borrowers for tougher repayments above the current interest rate.

Mr Lonsdale said APRA had kept the buffers steady amid concerns around the global economy and the labour market, noting the regulator was starting to see non-performing loans “edge up … from a low base”.

The APRA chair said credit growth was at “moderate levels”, noting macroprudential rules were not constraining lending “in any way”.

Mr Lonsdale said house prices were “not something that we regulate” but noted “it’s a very important part of the equation” for the regulator’s risk management of the bank sector.

“We’re happy with the macro prudential settings,” he said.

This comes as Australian Bureau of Statistics data shows lending for housing lifted 1.3 per cent in June, led by investor borrowing.

Investor lending is up 30.2 per cent year on year, while owner-occupier borrowing has climbed 13.2 per cent.

“Nor would we say that there’s a need to impose new constraints,” Mr Lonsdale said.

APRA last put in place limits on investor lending in 2014, hitting banks with a 10 per cent growth benchmark, amid surging house prices. Mr Lonsdale said high debt-to-income and loan-to-valuation ratio lending made up “only small proportions of new lending”.

“Lending standards remain sound, with banks able to make exceptions to their serviceability policy when it is prudent to do so,” he said.

This comes as APRA revealed it would merge its banking and general insurance functions under a new structure that will position oversight of the superannuation sector alongside life and private health insurers. APRA said the new structure would streamline its executive team, but noted the frontline supervisory staff for the industries remained “unchanged”.

In its new corporate plan, outlining the priorities of the regulator, APRA said it was shifting its focus from responding to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry “to a more targeted approach aimed at adjusting or recalibrating existing settings”.

APRA said it would structure its work in the year ahead around three key objectives: oversight of financial and operational resilience; responding to risks; and addressing industry challenges.

This would include APRA undertaking a key initiative to adjust capital and liquidity standards in response to the banking crises in 2023 that saw the collapse of Silicon Valley Bank among other lenders.

The prudential regulator will also increase its minimum standards for operation resilience.

APRA will also maintain a focus on cyber risk management, noting the rise of sophisticated scams impacting the community.

Governance requirements will also be reviewed under APRA’s plan, which will look at the boards and senior leadership of regulated entities.

This comes as APRA looks to implement the Financial Accountability Regime alongside the corporate regulator. APRA said it would lift expectations for regulated entities around their climate risk reporting. The regulator also flagged expectations it would be saddled with regulating the payments industry, noting APRA would prepare for the introduction of licensing requirements for payments services providers.

“As always, we will back up our approach with a strong appetite for taking enforcement action where required to ensure that entities comply with the law and the community is protected,” Mr Lonsdale said.

Originally published as APRA ‘happy’ with home-lending boom as new prudential plan revealed