APRA’s non-bank oversight may curb mortgage risks

Federal proposals to extend the regulator’s powers will reduce risk levels in resi mortgages, says one global ratings agency

APRA’s non-bank oversight may curb mortgage risks



Broader powers by the Australian Prudential Regulation Authority (APRA) to oversee the non-bank sector will have a positive effect on the residential mortgage market, said analysts from global ratings agency Moody’s.

The measures, announced in last week’s Federal Budget, could see APRA regulating lending by non-bank financial institutions.

This policy, if passed by the Australian government, would help curb riskier mortgage lending in the non-bank sector and thereby reduce any risks found in Australian residential mortgage back securities (RMBS).

“Non-bank lenders have significantly increased their origination of riskier housing investments and interest only mortgages over the past two years, a period over which APRA has introduced measures aimed at limiting growth of such loans by banks and other authorised deposit-taking institutions (ADIs),” analysts wrote in an article for Moody’s Credit Outlook.

“APRA currently regulates banks and other ADIs, but does not regulate lending by non-bank financial institutions. Instead, regulatory oversight of the non-bank sector is presently the responsibility of the Australian Securities and Investments Commission, which enforces responsible lending but does not have the power to implement macro-prudential policy measures.”

By extending APRA’s powers into the non-bank sector, the regulator would be able to set specific limits and ensure loan quality remains comparable to that of banks and other ADIs, Moody’s said. These broader powers would fall on top of the regulator’s March 2017 policy to monitor warehouse facilities that banks use to fund non-bank lenders.

In 2016, housing investment loans issued by non-bank lenders make up for 36% of all mortgages found in Australian RMBS, a large increase from the 16% found in 2015.

In a similar manner, interest-only loans accounted for 46% of all mortgages banking RMBS by the non-banks in 2016, compared to 21% in 2015.

Non-bank lenders write 6% of the total housing loans in Australia.

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