ASIC lendiong reforms ‘credit-positive’ for banks

The corporate regulator’s proposed changes to responsible lending guidelines would be ­’credit-positive’ for Australian banks.

ASIC’s proposed changes to responsible lending guidelines would be ‘credit-positive’ for Australia’s banks. Picture: AAP

The corporate regulator’s proposed changes to responsible lending guidelines would be ­“credit-positive” for Australian banks as loan quality increases, though they won’t significantly curtail the supply of credit, Moody’s Investors Service has found.

Following the release of the Hayne royal commission’s final report on February 4, the Australian Securities & Investments Commission released a consultation paper seeking to give lenders greater clarity on the information they should use to verify customers’ ­financial situations.

ASIC’s update to the regulatory guidance will be the first time it has been substantially changed in eight years, and comes after the widely used Household Expenditure Measure was criticised in the royal commission for understating expenses. The regulator wants to use the new guidelines to help lenders understand what it considers “reasonable steps” to verify consumer information.

“The updated guidelines, if adopted, will be credit-positive for Australian banks and other mortgage lenders, as well as residential mortgage-backed securities, because they will improve the standard of underwriting and lift the quality of new loans,” Moody’s said.

“In particular, ASIC identified bank statements as a readily available and suitable source of information that lenders can use to verify the income, living expenses and other liabilities that borrowers state in mortgage applications. If lenders do not make use of readily available information, such as bank statements or pay slips, they will need to explain why it was not reasonable to do so.”

ASIC has said the proposal would require banks to ensure that benchmark figures are realistic and adjustable to income ranges and location, that buffers are put into assumptions, and to review expense figures being relied upon in a mortgage portfolio.

Banks will have to give reasons if lenders obtain certain customer information but choose not to consider it, or if they have access to certain information but choose not to obtain it.

Over the past 12 months, as a result of increased scrutiny of their obligations, banks have moved away from relying heavily on the HEM and added additional criteria to credit screening.

That has given Moody’s ­comfort that the new guidelines won’t lead to a further clampdown on lending standards.

“We do not expect the proposals to drive a significant further tightening of standards,” the ratings agency said.

“Nevertheless, ASIC’s proposals will ensure that the focus on enhancing underwriting standards that is already under way is sustained and occurs consistently across the mortgage-lending ­sector.”