The banking regulator has left the door open to imposing geographically specific measures in heady property markets such as Sydney to keep a lid on lenders should the cocktail of risky conditions spur further action.
APRA’s chairman, Wayne Byres, also said clarity on the next wave of global banking reforms — known as Basel IV — would take longer than expected, bringing ongoing uncertainty for the banks.
The comments are notable because Mr Byres spent more than two years on secondment at the Basel Committee in Switzerland before returning to chair the Australian Prudential Regulation Authority last year. The Basel rules — plus the federal government’s Murray inquiry — could require the big banks to raise billions of dollars of extra capital, on top of the combined $15.5 billion that Commonwealth Bank, ANZ, Westpac and National Australia Bank have raised in recent months.
Credit Suisse analysts yesterday said the major banks still faced a $20bn “capital accumulation task”.
“There are lots of things the Basel Committee has said it is going to get done by the end of 2015,” Mr Byres said. “That’s a very ambitious timetable, and so it’s quite possible that some of those things won’t have every i dotted and t crossed by the end of 2015. So there will be, I think, a slightly longer period of uncertainty before we can work out what the precise landing point for a number of these things (will be).”
Speaking at an Australian Business Economists event in Sydney yesterday, Mr Byres also shed light on the regulator’s heightened focus on risks in the housing market. APRA has been “turning up the dial” on banks in recent years as lending standards declined amid hot competition and low interest rates.
In December, it culminated in APRA telling banks to cap lending to investors at 10 per cent a year, a level that the banking industry continues to slightly breach.
“We think it’s pretty clear that risks are rising,” Mr Byres said.
“We have, as I keep saying, high (house) prices, high debt, low rates, subdued income growth — a lot of things that are at extremes — and we need to be very wary.
“We can’t change any of these broader dynamics; we can’t change the level of debt, we can’t change the level of foreign investment.
“What we can do is try and make sure banks are lending on a sensible basis and they’ve obviously got the capital to back it up if loss rates increase.”
APRA’s 10 per cent cap on investor loans has drawn criticism for harming areas outside Sydney and Melbourne that are not growing as strongly. The cap has also prompted several banks, led by the big four, to recently increase borrowing rates for landlords to slow growth.
But Mr Byres said the banks’ “repricing” of investor loans may have “limited impact” on their loan growth as competitors also jack up their rates.
He also responded to calls for APRA to follow New Zealand regulators and just target lending in Sydney and Melbourne, noting its mandate was to “preserve the resilience of the banking system, not to influence prices in particular regions”.
He added the risks were national, sound lending was important through good times and bad, and NZ had only intensified its actions after previous efforts failed to ease concerns. “That is not to say that geographic measures would never be contemplated,” Mr Byres said, noting banks could be forced to set aside more capital for investor loans.
“There’s plenty of tools in the toolkit.
“We haven’t at this point ruled any out or in.”
Referring to the banks’ recent hikes to investor borrowing rates, Mr Byres said APRA would “see how these things play out and what impact they have before we too hastily make a decision about what’s next”.
To cool Auckland — where price are up 24 per cent in the past year compared with 3 per cent elsewhere — the regulator recently revealed investors buying in the city would need a deposit of at least 30 per cent.
Sydney prices are up 18.4 per cent, versus 11.1 per cent for capital cities nationally, according to CoreLogic RP Data.
This article first appeared in The Australian Business Review.