APRA chairman John Laker says the regulator is “pathologically worried” about poor credit standards becoming pervasive.
Speaking at an economics lecture yesterday Laker said the regulator is “working assertively” with banks to ensure these are upheld.
"What we need to understand is how much of a banking institution's lending is done at a high loan-to-value ratio, how rigorously that lending is assessed as to the ability of the borrower to repay that,” he told the ABC.
"So we've got to go beyond that ad to actually say: what is this saying about the portfolio and about the quality of risk assessment?"
Despite more banks advertising loans with high LVR ratios, APRA audits had not found any evidence of lowering credit standards, said Laker – but the regulator is keenly alert to the possibility.
"In the past, when competition went beyond price, it took the form of loosening of credit standards," he said.
"I think our bank boards and our credit union and building society boards are all very well aware of that. So ask a prudential regulator are they worried about credit standards; yes, pathologically we do."
Rumours of loosening credit standards have been circulating since NAB
CEO Cameron Clyne claimed at least one 'unnamed' competitor was weaking standards to gain market share, but no evidence of this has so far been found.