Stricter Lending Regulations Seems Beneficial – says RBA
It has been noticed by RBA that the tightening of lending standards in accordance with APRA regulations have a beneficial effect on slipping lending standards.
Reserve Bank assistant governor Malcolm Edey gave a speech at Australian Property Institute’s Queensland Property Conference in which he said, “Investigations revealed that lending standards have slipped following the recovery from the Global Financial Crisis”.
He further added, “As a general proposition, mortgage lending standards in the post-crisis period have been relatively tight, at least more so than before the crisis. Nonetheless, investigations by APRA and ASIC have shown that there was some slipping in lending standards and that they were inadequate in some important respects to the current risk environment”.
In his speech, Edey pointed out specific things like over-optimistic serviceability; borrower’s living expenses assessments as well as the failure to take future rate rises. He also noticed that the investor activity in the country is higher than expected.
He also explained that the RBA find the stricter lending standards imposed by APRA followed by all the major banks was the right step to improve the improper lending standards.
Concluding the speech, he said that it would take some more time to analyse the complete effect of all the measures. However, what we can say is that the risks in that sector are now being more prudently managed than they were a year or so ago.