has backed a recommendation by the Financial Systems Inquiry (FSI) to prohibit certain direct borrowing arrangements by superannuation funds.
According to the Inquiry, there is an emerging trend of superannuation funds using LRBA
s to purchase assets. Over the past five years, the amount of funds borrowed using LRBA
s increased almost 18 times, from $497 million in June 2009 to $8.7 billion in June 2014.
Although the level of borrowing is still relatively small, if direct borrowing by funds continues to grow at high rates, Murray warns it could pose a risk to the financial system over time.
“Borrowing, even with LRBA
s, magnifies the gains and losses from fluctuations in the prices of assets held in funds and increases the probability of large losses within a fund. Because of the higher risks associated with limited recourse lending, lenders can charge higher interest rates and frequently require personal guarantees from trustees.
“In a scenario where there has been a significant reduction in the valuation of an asset that was purchased using a loan, trustees are likely to sell other assets of the fund to repay a lender, particularly if a personal guarantee is involved.”
In its response to the final report of the FSI released yesterday, ANZ
said this type of borrowing is “incompatible” with the purpose of superannuation.
agrees with the recommendation of the FSI in regards to leverage in Self-Managed Superannuation Funds. ANZ
has not pursued this activity as part of its mortgages strategy,” the response stated.
believes that leverage should be limited in superannuation portfolios and we agree with the RBA
and APRA that it is incompatible with the objectives of superannuation.”