November 20, 2017 / 11:28 PM / a year ago

Australia's prudential watchdog to keep focus on housing in 2018

SYDNEY, Nov 21 (Reuters) - Australia’s banking watchdog will need maintain a close focus on lending for housing in 2018, Wayne Byres, chairman of the Australian Prudential Regulation Authority (APRA) said on Tuesday.

Australia’s property sector has been a focus for regulators this year with household debt climbing to a record-high as individuals speculate in a buoyant property market.

House price gains, particularly in Sydney and Melbourne, have softened in the past couple of months, although they still remain strong.

“The broader environment of high and rising leverage, encouraged by historically low interest rates, requires ongoing prudence,” Byres said in a speech in Sydney.

“It is easy to run up debt, but far harder to pay it back down when circumstances change,” Byres added, while acknowledging the regulator has been “more interventionist than we would normally wish to be”.

Byres expressed concerns over the overall rate of non-performing housing loans drifting higher and towards levels seen after the 2008 global financial crisis.

While lending standards have improved, following stringent oversight and measures by APRA in recent months, Byres said more prudence was warranted.

“A reasonable proportion of new borrowers have limited surplus funds each month to cover unanticipated expenses, or put aside as savings,” he said.

“We have also observed only a slight moderation in the proportion of borrowers being granted loans that represent more than six times their income,” Byres added.

“High loan-to-income lending in Australia is well north of what has been permitted in other jurisdictions grappling with high house prices and low interest rates, such as the UK and Ireland.”

Byres said he expects the industry to devote more effort in the collection of realistic living expense estimates from borrowers and give greater thought to the appropriate development and use of benchmarks.

APRA was also aware of more home loans flowing through the non-bank sector as the country’s major banks tightened their lending standards and raised rates on interest-only loans.

APRA will soon have greater powers over the non-bank sector if new legislation before parliament is enacted. But Byres said APRA will not take on a supervisory role, telling those who felt uncomfortable at the thought of APRA supervising non-banking institutions “let me assure you the feeling is mutual”.

“We are not seeking to expand our supervisory remit and, beyond collecting information that allows us to track aggregate trends in lending activity, we will not be undertaking any supervision of individual lenders.” (Reporting by Swati Pandey; Editing by Eric Meijer)

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