Regulators ask lenders to reveal how lending crackdown has impacted new business
Australian Financial Review Dec 10 2017 7:40 PM
Lenders are being quizzed by the nation's financial regulators about the impact of recent rule changes on their credit policies, lending volumes, marketing strategies, distribution and communication with mortgage brokers and clients.
In addition to seeking internal information about credit changes regulators are also requesting external communications with lenders and mortgage brokers through emails, websites, call centre scripts and press releases.
It comes as another big four bank, National Australia Bank, prepares to tighten its credit policies by updating borrowers' living expenses used in assessing customers' serviceability.
APRA and ASIC are taking the deep dive into lenders' data following the so-called "macro-prudential" changes intended to slow borrowing, particularly by investors, and ease pressure on property prices.
The regulators have sent detailed questions to lenders seeking responses to how the recent policy changes have influenced a range of key performance indicators, particularly any changes to their "lending book", which is a term used to describe lending records.
Details are being requested on changes to interest rates, lending policies, such as increasing or lowering loan-to-value ratios, fees and how it has been communicated to customers and brokers.
It follows the Australian Prudential Regulation Authority imposing temporary benchmarks for both investor lending growth and new interest-only lending.
APRA – with the backing of the Reserve Bank of Australia – intends to constrain higher risk lending and discourage lenders from competing aggressively for these types of loans by imposing caps on the amount and speed of growth. The RBA is concerned continued growth will inflate a housing bubble and make the economy more vulnerable to sharp shocks.
For example, in March APRA-regulated lenders had to limit their new interest-only lending to no more than 30 per cent of new lending.
About 90 per cent of housing finance is provided by APRA-regulated lenders. The Australian Securities and Investments Commission monitors non-authorised deposit taking institutions.
The regulators are asking lenders to answer more than a dozen detailed questions about changes to the size and composition of their lending books, such as a transition from interest-only to principal and interest loans, increased loan-to-value ratios for higher risk borrowers and higher rates.
It is also attempting to assess how lending practices have been influenced by closer attention to serviceability measures, such as assessment of living expenses and the identification of a borrowers' existing debts.
APRA has also been rolling out new, and in some cases more prescriptive, guidance on what it considers lenders need to know about a borrower's total debt, income and spending.
ASIC and the Australian Prudential Regulation Authority are checking with lenders on their communications with borrowers and mortgage brokers, who act as intermediaries between borrowers and lenders.
Senior bankers believe the regulators are attempting to assess what impact their changes are having on current market conditions, how effective it has been, whether it needs tweaking and might have benefited bigger lenders at the expense of mutuals, co-operatives and non-big four competitors.
The research will also provide benchmarks as a guide for future policy initiatives.
Neither regulatory would confirm the review.
But APRA chairman Wayne Byres recently stressed the importance of sophisticated data in ensuring lenders make "sound credit decisions" that are appropriate – individually and in aggregate –taking into account the broader housing market and economic trends.
APRA said it is also focusing more attention on so-called "shadow banks", or non-ADIs, by looking at whether bank warehousing of their loans is increasing risks.
Separately, NAB this weekend announced it is tightening its home lending credit policies by updating household expenses used to calculate serviceability. Westpac Group, AMP and Commonwealth Bank of Australia recently announced similar changes.
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