APRA highlights slowdown in high risk lending

by Miklos Bolza08 Dec 2017
2017 has seen some positive developments in both the residential and commercial lending spaces with the Australian Prudential Regulation Authority (APRA) highlighting the year’s leading trends.

An Information Paper released yesterday (7 December), which announced that the regulator had left the countercyclical capital buffer at 0%, went into detail around factors influencing the precise level of the buffer such as housing credit growth and financial stress.

High risk lending across the industry has “broadly continued to moderate” during 2017, the regulator said. This includes new lending at LVRs greater than 90% decreasing from 8.1% in September 2016 to 6.9% a year later.

“Other forms of higher-risk mortgage lending including interest-only lending at high loan-to-valuation ratios and high loan-to-income lending … have also moderated from 2015 peaks.”

Despite this, APRA has said it will maintain its focus on constraining borrower leverage using measures such as its new residential mortgage lending reporting form (ARF 223) which captures additional information on borrower debt-to-income levels.

In the commercial space, APRA’s review of commercial property lending standards has led to a tightening by the banks around underwriting.

“In residential development lending, there has been evidence of lower loan-to-valuation and loan-to-development cost ratios … amid concerns of oversupply and settlement risks in some regions.”

APRA also made mention of financial stress which it measures by the percentage of non-performing loans (NPLs).

“The share of non-performing loans remains low, at around 0.89% as at September 2017, largely reflecting lower arrears rates in NSW and Victoria. However, NPL rates remain elevated in regions and sectors with exposures to mining.”

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