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HOUSING LENDING STANDARDS
Sydney, 17 November, 2004: The Australian Bankers’ Association (ABA) supports the Reserve Bank Governor’s comments that banks and other lenders such as credit unions, building societies and mortgage lenders, should not lower credit standards.
The primary test for any lending institution is this: “can the borrower afford to repay the commitments on this loan.” Lenders should only make loans if they are confident the borrower can meet the loan’s contractual obligation.
Evidence suggests banks are lending very responsibly with historic lows in housing mortgage defaults. A recent stress test by the Australian Prudential Regulation Authority (APRA) revealed that banks are in a remarkably strong financial position to withstand a significant deterioration in market conditions.
Getting to the source of why there is “aggressive” competition
Aggressive competition has been cited as a home lending market problem. While many call for banks and other lenders to face greater and greater levels of lending competition, this is desirable only if the regulatory settings are sound and appropriate. This means:
- Ensuring an industry level playing field, not only in lending, but in other areas such as payments instruments.
- Ensuring unregulated lenders – mortgage originators and “fringe lenders” - do not get advantages over banks because they are not regulated by APRA.
- Ensuring government regulations don’t impose significant and in some cases, unnecessary, costs on banks and other financial institutions.
- Recognising there are artificial barriers to industry consolidation preventing bank capital from being allocated in the most efficient and appropriate way.
The Reserve Bank and APRA are well placed to lead the debate on these competition and regulatory issues.
For further information:
Heather Wellard
Director, Public Relations
Phone: 02 8298 0411
Mobile: 0409 830 439
ENDS
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