The chairman of banking regulator APRA has warned lenders to keep a close eye on third-party distribution channels.
Speaking at the Australian Business Economists Lunchtime Briefing in Sydney yesterday, APRA chairman Wayne Byres spoke about managing risk and ensuring prudent lending standards in the Australian housing lending market, which is characterised by high house prices, high household debt, historically low interest rates, and subdued income growth.
In his address, Byres said brokers play an important role for consumers and competition in the lending market, however he also called on lenders to manage their home loan flows through brokers with “appropriate care”.
“Another feature of the home lending market has been the increasing use of third-party distribution channels. There are potentially significant advantages from such an approach: for example, allowing smaller lenders or new entrants to compete more readily against the established branch networks of the bigger players,” he said.
“On the other hand, third party-originated loans tend to have a materially higher default rate compared to loans originated through proprietary channels. This does not mean third-party channels have lower underwriting standards, but simply that the new business that flows through these channels appears to be of higher risk, and must be managed with appropriate care.”