The Australian Prudential Regulation Authority (APRA) conducted an undercover survey on bank lending standards and found multiple suspect cases. APRA’s chairman Wayne Byres revealed on Wednesday that earlier this year the regulator underwent a hypothetical borrower survey. The intent of the survey was to “get to the bottom” of which lenders were making “less than prudent” lending deals. The regulatory agency noted that it was concerned that riskier lending practice may follow a low interest rate environment.
The survey asked several of the more influential lenders to provide serviceability assessments for four hypothetical borrows that the regulator created. Some of the fake borrowers included owner-occupiers and investors with the intent to underline the difference in credit and lending standards assessments. The regulator found that Australian authorised deposit taking institutions (APIs) would often make assessments based on a lower level of living expenses than what was declared by the borrow. “That is obviously a practice that should not continue,” said Mr. Byres.
APRA’s chairman said that although there were some less than prudent lending practices, the results from the survey did not reveal anything extremely serious. “So there is no confusion, let me be clear that Australian ADIs are thankfully well away from the types of subprime lending that have caused so many problems elsewhere,” he said. “Nevertheless, our overall conclusion from this hypothetical borrower exercise was that there were clearly examples of practice that were less than prudent.” The survey also revealed that lower interest rates likely influenced the judgment of APIs. Lower interest rates seemed to give lending institutions a wider gap between generous and conservative loan amounts.
Author: Imran Valibhoy
May 13, 2015
Since Joining the firm in 2006, Imran has worked on a range of M&A and Capital Market transactions in the natural resources, mining as well as projects in the renewable energy sector. Prior to joining Wise-owl, Imran worked at Euroz Securities in Perth, aiding in the advisory and valuation of companies in the mining and industrial sectors in Australia. Imran has a Masters in Banking & Finance from City University's Class Business School in London and a Bacheloor degree in Commerce from UWA.