SYDNEY (Reuters) - The Australian corporate regulator on Thursday hit back at claims that its anticipated imposition of tougher responsible lending rules is already hurting the country’s sluggish economy.
Financial regulators have said a current review into the way they police lending rules, started after a government-backed inquiry last year found misconduct in the sector, will result in heightened scrutiny.
Banks have since been taking longer to approve loans and complained of a resulting bottleneck.
“There has been a suggestion that responsible lending has had a negative effect on economic growth,” Australian Securities and Investments Commission (ASIC) commissioner Sean Hughes said.
“We do not accept this.”
The so-called Royal Commission into the financial sector found that banks had underestimated borrowers’ spending, sometimes knowingly, and in some cases approved loans to people who could not repay them. It also criticized ASIC for its lax oversight.
Executives at the major banks, including chief executive of Westpac Banking Corp (WBC.AX), have warned the regulator that highly prescriptive lending rules risk slowing down the economy, which is already under pressure due to soft consumption.
Economists have downgraded forecasts for Australian economic growth in 2019, despite three central bank rate cuts since June, with no return to long-term average growth expected until at least 2021.
“The evidence and data available to ASIC do not suggest that the decision to update our guidance has contributed to the current state of the economy by limiting access to credit,” Hughes said.
The main issue driving slower credit growth was a decline a demand for credit and not a change in the regulator’s policies, Hughes said.
“Indeed ... banks are still lending – approval rates remain between 85-90% for home lending.”
Low household spending and wage growth has led to weak demand for credit, with housing debt growth easing to 3.1% at the end of September, the lowest on record.
But a recent revival in the housing market has driven a pick up in home loan applications that is expected to be reflected in upcoming credit data.
Commonwealth Bank of Australia (CBA.AX), the country’s largest lender, on Tuesday reported a 2.5% increase in home lending for the first fiscal quarter of 2020 ending October 31.
“This pick-up in recent approvals lends further support to the view that it is not responsible lending obligations that have been dampening credit availability,” Hughes added.
Reporting by Paulina Duran and Byron Kaye in Sydney; Editing by Jane Wardell