The Reserve Bank of Australia has described Australian banks as resilient, but says it was moved by APRA's observation of riskier lending practices to initiate discussions with the regulatory body about how to reinforce sound lending practices for property purchases.
Reserve Bank assistant governor (financial system) Malcolm Edey made the comments as he and head of financial stability Luci Ellis fronted the Senate economics committee inquiry into public housing this morning.
"I want to emphasise that the banks in Australia are resilient, and mortgage lending in this country has historically been relatively safe," Mr Edey said in his opening remarks.
"APRA has, however, noted a trend to riskier lending practices, and over the past couple of years has been seeking to temper these through its supervisory activities."
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Mr Edey said there were also broader concerns with the macroeconomic risks associated with excessive speculative activity, in a veiled reference to constant talk of a "property bubble".
"This activity can amplify the property price cycle and increase risks to households," he said.
Asked what tools might be used, Dr Edey refused to "rule anything in or out," but said it would be determined by the banking watching, the Australian Prudential Regulation Authority.
However, Mr Edey said loan-to-value ratios are "unlikely".
When questioned about whether a tool under consideration was the application of stringent lending rules on loans only for properties in hotspots such as Sydney or Melbourne -- called geographical targeting -- Me Edey was coy.
He again said he wouldn't rule it in or out, despite incessant questioning from senators, adding he didn't know how likely or unlikely targeting is.
Mr Edey conceded the prime group for targeting is the investor market and noted that a significant amount of investor activity occurs in Sydeny and Melbourne.
Mr Edey said the RBA's assessment that the the composition of housing and mortgage market activity is becoming unbalanced in last week's Financial Stability Review was informed by a number of factors, including strong rises in Australian housing prices.
"Some of this perhaps represented an element of ‘catch up’ after some earlier weakness," he said.
"Nonetheless, prices have continued to rise significantly faster than incomes, and this has been associated with strong growth in investor activity."
Mr Edey also noted national housing prices have been rising at a rate of around 10 per cent over the past year, while loans to investors currently account for close to 50 per cent of new housing loan approvals.