APRA to investigate commercial lending

The regulator has announced plans to further delve into commercial lending standards in addition to its focus on residential loans

APRA to investigate commercial lending



The Australian Prudential Regulation Authority (APRA) has plans to conduct further investigations of the commercial loan sector this year, said chairman Wayne Byres.

In a speech at the Committee for Economic Development of Australia’s (CEDA’s) 2017 NSW Property Market Outlook in Sydney on Friday (28 March), Byres spoke of the regulator’s workplan and how APRA will keep the need for additional guidance material on commercial lending under consideration.

“Given the more heterogeneous nature of commercial property lending, it is more difficult to implement the sorts of benchmarks that we have applied to residential lending. But that should not be read to imply we have any less interest in the quality of commercial property lending,” he said.

He pointed to a thematic review of commercial property lending conducted by APRA in 2016 which looked at portfolio controls and underwriting standards of several domestic and foreign banks in Australia.

“The review found that major lenders were well aware of the need to monitor commercial property lending closely, and the need to stay attuned to current and prospective market conditions,” he told the audience.

“But the review also found clear evidence of an erosion of standards due to competitive pressures – for example, of lenders justifying a particular underwriting decision not on their own risk appetite and policies, but based on what they understood to be the criteria being applied by a competitor.”

APRA was keen to genuinely scrutinise the bank’s commercial lending practices and challenge the notion that growth in this sector was achievable in the current credit environment without the quality of lending suffering.

However, this goal “was often being hampered by inadequate data, poor monitoring and incomplete portfolio controls” with the lenders asked to improve their capabilities in this regard.

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