The nation’s chief banking regulator has issued a fresh shot across the bow of the banks, calling for a slowing of loans to property investors who are powering hot housing markets like Sydney and Melbourne.
As the Australian Prudential Regulation Authority continues a review of bank lending, chairman Wayne Byres told The Australian he hoped investor lending growth would slow in coming months.
In early December, APRA wrote to banks with guidelines for lending — including not to increase investor loans faster than 10 per cent annually — and threatened higher capital requirements on those deemed to be adding too much risk in a frothy market.
But in January, overall investor housing credit growth breached the level as it hit a seven-year high of 10.1 per cent, according to Reserve Bank data.
Yesterday, economists also seized on Bureau of Statistics numbers showing the value of investor approvals in January for established houses rose 1.6 per cent on the prior month, or 19.1 per cent in the year.
“Over the coming months we expect the RBA to cut rates again and APRA to further step up macroprudential supervision,” Goldman Sachs economist Tim Toohey said.
Facing the prospect of firm macroprudential limits — rather than guidelines — for the first time since the mid-2000s, the Australian Bankers Association this week released a report arguing there was “insufficient evidence” of a speculative bubble and lending standards were not being relaxed.
While not pre-empting APRA’s review ending later this month, Mr Byres cautioned against focusing too much on the recent data and said the focus was on future intentions.
“The reported growth rates are backward looking, whereas we are focused on lenders’ plans for 2015,” he told The Australian on the sidelines of a Centre for International Finance and Regulation event in Sydney.
“In many cases, people are drawing down on loans where the approval may have been granted before our letter (in early December) was issued.
“We’d obviously like to see things slowing down and we’d hope to see that in the future. But what is appearing in the numbers at this point in many cases are lending decisions and volumes that were in the pipeline before we issued our letter.”
In testimony to a Senate committee late last month, Mr Byres said about a quarter of lenders were increasing investor loans beyond 10 per cent and stricter capital requirements may be imposed on those that wanted to continue that growth.
“The next step in turning up the dial another notch would probably be to look at whether some across-the-board increase in capital requirements for particular sorts of lending might be needed,” he said.
According to APRA’s data for January of the institutions it regulates, investor housing growth actually slowed to 9 per cent, from 11 per cent in December. NAB grew at an annualised rate of 16 per cent in the past three months, above its major bank rivals’ 8-10 per cent. Macquarie has also been growing strongly off a small base.
Macroprudential rules have been imposed in countries around the world, including New Zealand, to control housing markets amid low interest rates.
This article first appeared in The Australian Business Review