Non-major forced to ‘slam the brakes’ on investors

The head of a regional bank has explained the impact that APRA’s lending curbs have had on the group’s mortgage portfolio as it refocuses on different market segments.

Addressing shareholders at the Bendigo and Adelaide Bank AGM this week, managing director Mike Hirst admitted that regulatory measures had impacted mortgage growth over the last year.

“Macro-prudential actions have forced banks, including ours, to slam on the brakes in investor and interest-only lending,” Mr Hirst said. “Some of the growth momentum we experienced [in] the year just gone has been interrupted.”

The latest APRA monthly banking statistics, released this week, show that the regional bank held $11.7 billion of investor mortgages as at 30 September, up by 5.4 per cent on the same period last year.

Mr Hirst said that the regulatory measures have led to increased price and credit competition in areas that aren’t subject to restriction.

“For us, owner-occupied home loans and business lending,” the managing director added.

The bank’s owner-occupied portfolio was valued at $22.5 billion as at 30 September and accounts for more than 65 per cent of the group’s total mortgage book.

Mr Hirst said that he expects total balance sheet growth to be relatively flat in the first half as the lender maintains its “long-term tenet of only writing business at prices that reflects the risk being taken.”

Macro-prudential measures were introduced in 2015 as a response to growing fears that the Australian mortgage market was becoming imbalanced. Little indication has been given since then about how long these constraints will be in place.

However, APRA recently flagged that it would like to start scaling back its intervention, provided that banks can continue to lend responsibly.

Speaking at the Customer Owned Banking Convention in Brisbane on 23 October, APRA chairman Wayne Byres noted that since the regulator stepped in to curb certain types of credit, the quality of lending has improved and risk standards have strengthened.

“We would ideally like to start to step back from the degree of intervention we are exercising today,” Mr Byres said.

“Quantitative benchmarks, such as that on investor lending growth, have served a useful purpose but were always intended as temporary measures. That remains our intent, but for those of you who chafe at the constraint, their removal will require us to be comfortable that the industry’s serviceability standards have been sufficiently improved and — crucially — will be sustained.

“We will also want to see that borrower debt-to-income levels are being appropriately constrained in anticipation of (eventually) rising interest rates.”

Mr Byres stressed that APRA’s expectations apply across the industry — “to large and small alike”.

[Related: RBA: $1.4bn in home loan switching over September]

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