APRA has warned banks to exercise caution when issuing mortgage repayment concessions to borrowers facing financial hardship.
It made the assertions in a letter sent to top bank executives this weekend, urging them to be wary of the risks involved.
'Hardship concessions' are commonly used to reduce rates, lengthen the lifespan of a loan or defer interest rate payment to borrowers undergoing a tough financial period.
APRA said some banks were "wiping the slate clean" with borrowers, to avoid activating debt collection processes.
It said while 'hardship concessions' were sometimes necessary, it potentially disrupted the reporting process.
APRA claimed there were cases of banks not reporting overdue loans.
''While this practice may be reasonable from an operational perspective, it can obscure prudent internal and regulatory reporting of past-due and impaired loans,'' APRA said.
Earnings reports from several major banks are expected this week. Analysts are predicting profit margins will be hurt by poor mortgage lending activity in the past year.