RBA on careful watch after banks tighten lending controls

by Julia Corderoy28 May 2015
Moves made by the major banks to tighten lending controls are on the Reserve Bank’s radar, as it could drive buyers elsewhere for loans. 

Speaking at the Thomson Reuters' 3rd Australian Regulatory Summit, deputy governor of the Reserve Bank Philip Lowe said the use of macroprudential tools to control lending can only be pushed so far, the ABC reports.

“This is an issue that's very clearly on our radar screen. How far can you push the tighter regulation of the banking system without causing the same volume of loans to be made but just through a different financial intermediary,” the ABC quotes Lowe.

“In the '70s and the '60s we had a lot of the tools that are currently in vogue and we ended up getting rid of them was because what happened was that institutions found out ways of getting around the rules.

“Finance is very flexible and people are very good at moving the money from the people who have it to the people who want it.”

Lowe’s comments come after a number of lenders – including all four major banks – announced stricter lending guidelines around investor loans, including reducing pricing discounts and implementing LVR caps on investor loans. 

These moves were made in response to recent warnings from APRA to curb any material growth over 10% in investor lending, as house prices in Sydney and Melbourne continue to head north. 

House prices in Sydney climbed 14.5% in the 12 months to April, while Melbourne house prices rose 6.9%, according to CoreLogic RP Data. This growth is significantly above the third best performing capital city, Brisbane, where prices increased 2.2% over the same period. 

Further, the latest quarterly APRA statistics reveal that investor loans were behind the majority of growth in the residential mortgage market, increasing by 2.6% in the March 2015 quarter. Over the year to March, loans to investors surged 12.4% – above APRA’s 10% guideline.

According to the ABC, Lowe said Australia has not experienced rapid growth in non-bank loans yet, but any tougher regulations would make that far more likely.

“Maybe a few more loans are being made through non-bank lenders than through the banking system as a result of the tougher requirements, but it's very much at the margins.

“But it's a margin that we do need to watch very carefully, and history tells us that if you make the incentive too misaligned between the banks and the non-banks then the funding will follow to the non-banks.”