Banks to maintain standards as Canberra turns on credit taps

The nation’s banks say they are ready to lend but have vowed not to water down standards.

A good day for the banks. Picture composite: AAP

The nation’s banks have said they are ready to lend but vowed not to water down standards amid one of the biggest shake-ups for lending rules in a decade.

In a bid to kickstart the economic recovery, the federal government yesterday announced it would dump responsible lending obligations, brought in under the Rudd government in 2009, to unshackle lenders from excessive regulation and make it easier for borrowers to access loans.

Under new obligations, which have yet to be legislated, lenders will be able to take at face value the information provided by borrowers on which they will base their loan assessments. Borrowers will shoulder the responsibility of providing accurate information, unlike the current laws which place the onus on lenders to verify information contained in a borrower’s application.

Bank share prices rocketed on the back of the proposed reforms, with Westpac closing up 7.4 per cent at $17.58, NAB adding 6.9 per cent to $18.37, ANZ gaining 6.3 per cent to $17.93, and CBA rising 3 per cent to $66.13.

Regional lenders also gained on the planned changes, with Bendigo Bank up 4.8 per cent to $6.38 and Bank of Queensland rising 2.8 per cent to $6.21, while listed mortgage brokers Australian Finance Group and Mortgage Choice shared in the gains, jumping 9.2 per cent to $1.96 and 9 per cent to 91c respectively.

The move away from the “one size fits all” regulatory approach comes two years after the financial services royal commission was flooded with tales of dodgy consumer lending practises by lenders and brokers.

In his final report, released early last year, commissioner Kenneth Hayne did not recommend changes to the Consumer Credit Protection Act brought in by the Rudd government just over a decade ago, saying banks should apply the law “as it stands”.

Praise for government

Westpac chief executive Peter King praised the Morrison government’s reforms as a means of reducing red tape for consumers and speeding up the loan approval process.

“These enhancements would enable us to assess loan applications across specific lending products rather than a one size fits all approach. We will be able to streamline our processes, making it an easier and simpler process for customers,” Mr King said.

Adding a note of caution, he said it was in the bank’s interest to only lend to customers who could meet their financial obligations.

“The government proposal strikes a good balance between reducing regulatory burden on credit providers while ensuring we have rigorous credit processes in place,” Mr King said.

ANZ chief executive Shayne Elliott said the changes would protect consumers while ensuring the efficient flow of credit during a challenging time for the country.

“The simplification of Australia’s credit framework will speed up the flow of credit during these difficult economic times while still providing the necessary protections for Australians when accessing credit.”

The nation’s biggest bank, CBA, welcomed the move to reduce the regulatory burden.

“We welcome the government’s announcement about reforming the way that lending arrangements are regulated. We will work through the detail of the proposals but as a principle we support any attempts to reduce regulatory burden while continuing to ensure that consumers are protected,” a CBA spokesperson told The Australian.

NAB said it would work closely with the government and regulators on the details of the proposed changes.

Good day for the banks

“NAB is committed to lending responsibly and appropriately. It is not in customers’ interests to borrow money which they cannot afford to repay, and banks still need to be alert to helping customers avoid stress. We remain open for business to support customers and the economy.”

Bell Potter analyst TS Lim said it was a good day for the banks.

“It’s been a good reaction in the sharemarket, I guess growth is probably back on the agenda for the banks, but I think they have to be careful not to get too carried away.

“It could also signal that it’s about time they use up some of the capital they have to increase lending. But the banks are aware of the fact that they shouldn’t be chasing market share just for the sake of it. So whatever they do, it has to be profitable,” he said.

Morningstar analyst Nathan Zaia said, in theory, the changes should make it easier for borrowers to get a loan.

“I don’t think the banks will go out and just give money to anyone who asks for it, they’re in the business of making money. It will definitely help support credit growth,” he said.

But consumer groups slammed the move as shortsighted. “The problem people are having right now is too much debt and not enough income. Unsustainable debt hurts real people and is a shortsighted fix for a flailing economy,” said Karen Cox, CEO of Financial Rights Legal Centre.

“Watering down credit protections will leave individuals and families at severe risk of being pushed into credit arrangements that will hurt in the long term.”

Gerard Brody, CEO of Consumer Action, cautioned that responsible lending laws were there to ensure safe access to credit.

“Leaving people with more debt they can afford is no way out of an economic crisis. Pushing too much credit that people can’t afford to repay creates hardship, stress, anxiety for individuals and families,” he warned.

Financial Counselling Australia CEO Fiona Guthrie warned that removing responsible lending obligations would free banks up to aggressively push credit onto their customers. “There is significant profit to be made in pushing borrowers to the edge.”

The responsible lending rollback comes two months after the Australian Securities and Investments Commission admitted defeat in its landmark responsible lending case against Westpac, after losing both the case and its first appeal in Federal Court.

The regulator in July chose not to launch a final appeal in the so-called “wagyu and shiraz” case, citing the “challenging economic circumstances” as a reason for not pursuing the case further.

ASIC had alleged that Westpac breached responsible lending laws by not taking into account borrowers’ real living expenses when assessing loan applications, but the court didn’t agree, finding that a borrower’s current living expenses didn’t always indicate whether they could afford a loan.