APRA identifies new target in banking stability crusade

by Phil McCarroll01 Sep 2016
The head of the Australian Prudential Regulation Authority (APRA) has signalled the regulator will look to different methods to ensure the stability of the banking sector after its crackdown on residential investment lending proved to be effective.

According to a report in the Australian Financial Review, APRA chairman Wayne Byres, speaking at an event at the Actuaries Institute on Tuesday, said the regulators 10% cap on annual investor lending growth was always designed as a temporary measure and further tightening would likely have little impact on Australia’s baking sector.

"It is all very well to say that 10% cap could be a bit high, and you could lower it by a couple of percentage points - but actual growth in investor lending at present is down near 5[%]. I could lower the cap to 7[%], but I don't know what difference that really makes,” Byers said according to the AFR.

“[The cap was] always intended to be temporary [and] it is still our view that it will be temporary, so we are certainly thinking about the next evolution of what we do,” he said.

According to the AFR report, Byers said APRA’s would still have a sharp focus on the loan books of Australian banks, but it would focus on commercial property lending.

“In the history of banking, commercial property has always been front and centre whenever there have been any serious issues in the system. So it is natural that at times when valuations look to be on the high side, we are making sure the lending quality of the banks and the basis on which they are assessing credit is maintaining a healthy degree of prudence about it,” he said according to the AFR.

During his speech at the event, Byers also said that while the regulator’s recent push to require lenders to hold increased amount of capital against their loan books has strengthened the Australian banking system but it is nearly impossible to guarantee their won’t be any future collapses.

“We also need to remember there are no guarantees. No level of capital (short of 100% equity funding) can provide creditors with an absolute guarantee against the possibility of bank failure,” Byers said.

“Adequate capital is undoubtedly critical to the stability of any banking system. But to return to today’s theme, we can’t solely ‘bank on capital’ to deliver safety and stability. If we accept that failures, while hopefully still reasonably rare, are nevertheless inevitable, then preparation to minimise their impact is an essential investment,” he said.

To minimise any impact, Byres said its essential the APRA continues to have an active supervisory role of the industry and that it retains its willingness to intervene if necessary.