Investor lending has grown at its strongest pace in five months, new statistics reveal, just after APRA warned it will act soon on bank capital requirements.
Lending to investors increased by 0.9% over March, according to statistics compiled by the Reserve Bank of Australia, which is the strongest monthly growth since October 2014. Meanwhile, lending to investors over the year to March has surged 10.4%, the largest yearly growth since February 2008.
The figures come just after APRA chairman Wayne Byres warned that the regulator will be acting “sooner rather than later” on increasing bank capital requirements, recommended in David Murray’s Financial Systems Inquiry.
“Further reforms to bank capital requirements are in the pipeline, emanating both from the FSI and the Basel Committee,” Byres said at the AFR Banking & Wealth Summit in Sydney on Wednesday.
“While we want to deal with the various proposals in an orderly manner, I’ve made the point elsewhere that we do not need to wait for every i to be dotted and t to be crossed in the international work before we turn our minds to an appropriate response to the FSI’s recommendations.
“Some – such as Recommendations 2 (mortgage risk weights) and 4 (international capital comparisons) – seem able to be dealt with sooner rather than later. We’ll have more to say on these issues shortly, but with continued sensible capital planning the industry is well-placed to accommodate them.”
Last December, APRA outlined steps it planned to take to reinforce sound residential mortgage lending practices, in particular increasing bank capital requirements on investor loans.
“Given the currently very strong growth in investor lending, supervisors will be particularly alert to plans for rapid growth in this part of the portfolio. For example, annual investor credit growth materially above a benchmark of 10% will be an important risk indicator that supervisors will take into account when reviewing ADIs’ residential mortgage risk profile and considering supervisory actions,” Byres wrote in a letter to ADIs.
Therefore, as statistics reveal that investor lending continues to head north of 10%, banks may indeed find APRA acting sooner rather than later on tougher capital requirements.