‘Ample scope for banks to lift risk appetites’: APRA

The chairman of the prudential regulator has taken a swipe at Aussie banks, saying loan inaccessibility is not the fault of regulatory settings.

The prudential watchdog has taken a swipe at banks complaining regulatory rules are making it too difficult to lend to prospective borrowers, saying there is ample scope for banks to lift their risk appetites.

Speaking at a banking conference in Melbourne on Wednesday, Australian Prudential Regulation Authority chairman John Lonsdale conceded it was harder to get a home loan today than before, but put the blame squarely on high house prices rather than oppressive regulatory requirements.

His comments came shortly after ANZ Bank chief executive Shayne Elliott, at the same conference, said the lender was no longer able to cater to middle Australia.

“Most of the (prudential) framework is principles-based, which creates significant room for banks, as well as insurers and super trustees, to run their businesses the way they want,” Mr Lonsdale said at the conference.

“In banking, that means the ability to set their own business strategy, pricing and risk appetite.

“At a time when banks are well-provisioned and seeing lower-than-expected losses, there is ample scope for banks to rethink their business strategies, lift their risk appetites in some areas and adjust their pricing.”

A bank’s commercial success is more a function of the decisions its board and management make than a reflection of the financial regulatory framework, he added.

APRA has already granted banks “the discretion to offer loans using exceptions to our guidance on mortgage serviceability in cases where they are confident the borrower has the capacity to repay the loan,” Mr Lonsdale said.

Addressing the affordability challenge, Mr Lonsdale said it was not due to the regulatory framework but rising house prices.

“Is it getting harder for homebuyers to get sufficient credit to buy homes? Yes, it is. The primary reason for that is a rise in house prices since the start of the pandemic of over 35 per cent during a period where wage growth has been 13 per cent, combined with a rising cost-of-living and an official cash rate that’s risen 4.25 per cent since May 2022,” Mr Lonsdale said.

“APRA’s serviceability buffer also plays a role in reducing borrowing capacity, and that has led to calls for us to lower it. If we believe economic conditions warrant changing it, we will do so.

“APRA is actively seeking ways to make our regulatory framework simpler, more proportionate and easier to comply with. But we will not take risks that might compromise stability or the ability of our banks to keep credit flowing to support the economy.”

Earlier at the conference, ANZ’s Mr Elliott said historically low levels of hardship among borrowers was partly because banks are now lending more to the wealthy than middle Australia.

“We’re all reporting historically low levels of stress, hardship, they’re still remarkably low in historical terms,” Mr Elliott said.

“And I think part of the reason … is we don’t bank to the middle anymore. We skew to the wealthy, and it’s not just by choice but sometimes it’s the reality of the regulated environment.

“It’s just hard to get a credit card today, harder than at any time in anybody’s lifetime in this room. So the sort of people that we interact with day to day are not the middle of Australia that we used to. And so I think that’s part of the reason (we’re not seeing high levels of hardship).”