Bankers say lending regulations are sending potential clients to unregulated operators

Australia’s top bankers have unleashed on the regulatory system, claiming current rules restrict lending and push potential customers into the arms of unregulated and more costly operators.

NAB chief executive Ross McEwan. Picture: Hollie Adams

Australia’s top bankers have lined up to take shots at regulatory changes which they say have gone too far and forced many would-be customers into alternative finance, and into debt and distress.

Speaking at a business forum in Sydney, the bosses of NAB, Westpac and Commonwealth Bank took aim at the state of the lending and banking landscape, saying the system was making borrowing more difficult and often more expensive to access.

NAB chief executive Ross McEwan said new plans to impose additional layers of regulation concerned him.

“I think we’re in for another round of unintentionally making it more and more difficult and more expensive to deal with customers and their actual needs,” Mr McEwan said.

But Australian Prudential Regulation Authority chairman John Lonsdale wasn’t in the room to hear the first salvos at the banking safeguard scheme.

He departed the conference soon after revealing that the financial sector was set to face a new round of stress testing amid concerns over exposure to commercial real estate assets and cyber risks.

APRA chair John Lonsdale. Picture: Chris Pavlich

Mr Lonsdale told bankers they would face the test next year, noting the probe would also seek to identify possible “blind spots” in our supervisory regime.

APRA, which sets the rules for the banks, has stuck firm to its 3 per cent lending buffers, which require banks to assess borrowers who apply for loans, either new or refinanced, at floor rates now sitting at about 9 per cent.

Mr McEwan said he was surprised at how little stress was present in the financial sector, despite 13 interest rate rises and a surge in inflation. NAB revealed in February that it had seen loans 90 days past due stable at 0.75 per cent, while arrears were ticking up across its home loan portfolio.

Westpac Group chief executive Peter King. Picture: Richard Dobson

While in recent days Fitch Ratings revealed home loan arrears had now hit their highest level since the start of the pandemic in May 2020, at 1.21 per cent in the December quarter, they were still tracking well below their long-term average.

Speaking as he marked his last week as NAB boss, Mr McEwan said the banking sector had faced multiple layers of regulation in the wake of the banking royal commission, saying they had squeezed many customers out of the banking sector.

He said growth in customers for payday lenders and buy now, pay later platforms signalled how many were no longer part of the banking sector.

But he took aim at regulatory failings around lending and payments, saying “if it looks and feels like credit, it’s credit”.

But Mr McEwan said extending more mortgage finance was not the solution to the housing shortage, calling for co-ordinated action from state and federal governments.

Westpac CEO Peter King also expressed his concerns over the regulatory regime, saying the bank’s low levels of bad debts had raised questions from industry watchers. He said Westpac’s low levels of delinquencies was not showing the consequences of the run of rate rises and rise in the cost of living.

Commonwealth Bank chief executive Matt Comyn. Picture: Jane Dempster

Mr King said many borrowers who used to find themselves in distress had probably shifted to the unsecured markets.

CBA chief executive Matt Comyn said Australia was one of the hardest markets in the world to take out a credit card, adding that the responsible lending laws and risk appetites from the banks were “a challenge”.

The Australian Banking Association’s Anna Bligh said ­potential borrowers, who could not access the mainstream banking system, often went to non-bank lenders where they paid higher rates and faced less support and protection “if they get into trouble”.

“I worry that Australians who could be getting their own home, getting some wealth, getting some housing are getting locked out of that system,” she said.

But Pepper Money CEO Mario Rehayem said the non-bank sector allowed borrowers to get into housing and build their wealth, often before transferring into the mainstream banking ­sector. “We help customers get into homes at a time when they’re not being serviced,” he said.

ANZ chief executive Shayne Elliot has previously taken aim at financial regulators, saying in ­November that home lending “has become the preserve of the rich”.

This was echoed on Tuesday by ANZ New Zealand boss Antonia Watson, who said regulation had led to a “real slowdown in lending”, with lending laws that “made sense if you’re a policy adviser” making it much harder to lend money. “A consequence of wider credit appetite is more losses at the end of the day … that doesn’t mean that someone will lose their home,” she said.

But APRA executive board member Therese McCarthy Hockey said the regulator was “really mindful” of the impacts of its regulatory interventions, with the agency recently having visited the National Debt Helpline to understand the distress of those engaging with the financial system, both regulated and not.

Originally published as Bankers say lending regulations are sending potential clients to unregulated operators