Whilst APRA says its focus on reinforcing prudent lending standards in a competitive mortgage market has had some success in moderating the lending behaviour, it is still not ruling out tougher macroprudential action.
In December last year, the banking regulator announced its specific areas of concern, alerting the industry to its heightened level of supervisory intensity and setting out specific expectations to help address housing sector risks. Specifically, these areas included high LVR lending, investor lending and borrower serviceability assessments.
Since then, many Australian lenders have implemented various changes in market practices, most notably adopting limits on interest-only lending and placing restrictions investor LVR limits.
In its submission to the parliamentary inquiry into home ownership, APRA has recognised these changes, saying evidence suggests that there has been some success in ensuring prudent lending standards.
“Throughout this process, Australian ADIs, and particularly larger lenders, have acknowledged the need for collective action to ensure Australian housing loan portfolios remain sound and a source of stability,” the regulator said.
“It is too early to assess the overall effectiveness of APRA’s actions. However, available evidence suggests the supervision-led approach has had some success in moderating the lending behaviour of those ADIs pursuing higher risk strategies.”
However, APRA has also made a point of not ruling out further supervisory action, including adopting tougher macroprudential restrictions seen in other housing markets around the world.
“APRA will be monitoring the impact of the current set of initiatives for the foreseeable future, and has not ruled out initiating further measures that should be necessary to ensure that emerging prudential risks in the housing market are appropriately contained,” the submission states.
“APRA could also adopt the types of ‘macroprudential’ tools of the kind used by other countries. To date, APRA has not seen necessary to use these types of tools, and prefers to use supervisory interventions to shift regulated entities collectively toward better practice. Nevertheless, APRA has not ruled out using other tools, such as limits on particular types of higher risk lending or more prescriptive serviceability parameters, if deemed warranted.”