Banks 'infected by risk-aversion', warns ANZ chief

The chief executive of ANZ Bank, Shayne Elliott, says overly cautious regulators could undermine the crucial role played by banks in greasing the wheels of capitalism, if there are more curbs placed on lenders' activities.

Mr Elliott's concerns were echoed by "Aussie" John Symond, the founder of Aussie Home Loans, who said over-regulation was one of the biggest threats to an otherwise "bloody fantastic" outlook for the housing market.

ANZ CEO Shayne Elliott says banks need more clarity on their responsible lending obligations.Credit: James Brickwood

Speaking in Sydney on Monday, Mr Elliott said he was "reasonably positive" on the signs of stabilisation in housing, but believed there was still not enough clarity on what banks' responsible lending obligations were.

Mr Elliott said responsible lending laws were still "a little bit grey" in their language, which says banks must take "reasonable steps" to make sure loans are "not unsuitable".

He said the royal commission last year had thrown into question the way banks were operating in this area, causing staff to refuse loans that fell into grey areas.

"That is a risk-aversion that has infected, I think, most of the banks at the moment. I’d say the pendulum is swinging back, we’re becoming a little bit more normalised… but we’re still a long way from where we need to be. What we need is clarity. We want greater clarity from the regulators about that definition," he said at an Aussie Home Loans conference for mortgage brokers.

With the corporate regulator on Monday holding its first public hearings on responsible lending rules, Mr Elliott said history had shown banks had done a "pretty good" job, with "extremely few" customers getting themselves into financial strife with debt.

"The risk at the moment is we go too far the other way, and you know I’m not suggesting we’re there, but if we go too far, we will be unable to fulfil our number one role in the economy in the system, which is to provide liquidity so that the economy can actually get out there and move, so that people can take risk," he said.

"The economy works when you have reasonable access to credit and people can make mistakes and start businesses that sometimes will fail. That is an integral part of a well-functioning western economy."

At the hearing on Monday in Sydney, Bank of Queensland broke ranks with the big banks, saying its loan applications assessment process is more diligent than others and is putting the bank at a competitive disadvantage.

Anthony Rose, the interim chief executive, said BoQ had lifted its standards "some time ago" in response to “shifting expectations from the community and from regulators".

"In our view, regulatory guidance that provides too much latitude for subjectivity and interpretation is not the best outcome for customers or competition," Mr Rose said.

"In our view, this has led some customers to instead seek finance from lenders whose approach may not have been as rigorous [as ours]."

Aussie Home Loans chairman John Symond says there are too many grey areas in responsible lending laws.Credit: John Veage

Mr Symond, chair of Commonwealth Bank-owned Aussie, was also relatively upbeat on the housing market, while criticising "over-regulation."

"The housing market has, I believe, settled down. In the majority of areas the price spiral down, I think, has flattened. So you have a look at the outlook, at where you’re sitting today compared to 12 to 18 months ago, it’s bloody fantastic,” Mr Symond said.

However, he also complained there were too many "grey areas" in responsible lending laws, saying the "fear of repercussions" meant lenders were turning away some customers.

"The fear of over-regulation is real, it is costing buyers and first home buyers the opportunity to get into home ownership. I think it's one of the biggest risks over the next 12-18 months of the housing market actually getting back on its feet," he said.

The Federal Court will on Tuesday hand down its ruling in a battle between Westpac and the Australian Securities and Investments Commission over responsible lending, and the bank's checking of borrower expenses. The court rejected a proposed settlement between the two sides last year.

The royal commission did not ultimately recommend changes to responsible lending requirements. However, its public hearings last year questioned if banks had been following the laws in this area, especially in relation to the checking of customers' expenses and their financial circumstances.

Mr Symond said a “silly but true” example was that brokers had to ascertain if a woman might be pregnant when a couple was applying for a mortgage. “I mean where do you draw the line? That is crazy,” he said.