Sydney, 26 March, 2010: The Australian Bankers’ Association (ABA) said the Real Estate Institute of Australia (REIA) failed to understand that banks in Australia were able to continue lending throughout the global financial crisis in marked contrast to some banks overseas which collapsed or were nationalised by overseas Governments.

The ABA was responding to yesterday’s statement  from the REIA which claimed that banks were retarding an increase in the housing supply through lending practices.

Steven Münchenberg, Chief Executive of the ABA, said: “Banks in Australia played a critical role during the global financial crisis which seems to be completely ignored by the REIA.”

“When the business models faltered for the non-bank lenders, banks stepped up to the plate and filled the lending gap, otherwise some borrowers would not have been able to get a loan.”

“Perhaps the REIA would like to contrast Australia’s positive performance with the US which, according to the Reserve Bank, has had the sharpest rise in unemployment rates and the steepest fall in house prices.”

The Reserve Bank of Australia (RBA) has recently provided support to the banking sector to tighten credit standards especially if a speculative cycle were to emerge on the back of the recent strength in housing prices. The RBA warned banks against relaxing Loan-to-Valuation Ratios and other lending rules.

Assistant RBA Governor Philip Lowe said yesterday:

“On the financing side, we are currently not seeing the type of financial developments that caused concern in 2002 and 2003 when maximum LVRs were being raised, loan servicing requirements were being eased, new types of mortgage products were being introduced, and risk spreads were being compressed. This is good news, as it would obviously be unhelpful if a speculative cycle were to emerge on the back of the recent strength in housing prices. This is an area that lenders and current and prospective home owners will need to watch carefully over the months ahead.”

Mr Münchenberg said: “It doesn’t make business sense for a bank to make a loan to a customer who cannot afford to repay or to lend in into risky segments or areas. Banks must act responsibly – after all it was irresponsible lending in the US that was the trigger for a lot of the global financial problems.”

“In terms of competition, I actually think there's strong evidence that there's a lot of competition between the banks. In the last 12 months for example, we've seen the banks slashing a whole range of fees, particularly unpopular fees, which they would never have done, unless they were competing fiercely for customers. There's 130 providers of mortgages out there in Australia, so it's not like we're relying on only four sources.”