Powered by MOMENTUM MEDIA
subscribe to our newsletter

APRA warns banks of third-party risks

The prudential regulator has warned banks that their reliance on mortgage brokers can lead to additional risk and levels of exposure beyond a lender’s risk appetite.

Released yesterday, APRA’s final prudential practice guide for authorised deposit-taking institutions (ADIs) on sound risk management practices for residential mortgage lending details how banks can mitigate the risks of third-party distribution.

The guide, APG 223 Residential mortgage lending, summarises APRA's expectations for good residential lending practices, but does not create any new prudential requirements for ADIs.

The guide includes direction on addressing housing credit risk within an ADI’s risk management framework, applying sound loan origination criteria and appropriate security valuation methods, managing hardship loans and establishing a robust stress-testing framework.

Noting that banks typically use various direct and indirect origination channels to source home loans such as branches, telephone, brokers and online, the guide states that a prudent ADI would recognise and address the risks arising from different origination channels in its risk management framework.

Advertisement
Advertisement

“In APRA’s experience, ADIs that extend loans away from their core geographic market tend to be more reliant on third-party originators,” it stated.

“If not closely monitored, this reliance can potentially lead to additional risk and give rise to higher levels of exposure that may be outside the ADI’s risk appetite.”

APRA chairman Wayne Byres noted that residential mortgages constitute the largest credit exposure in the Australian banking system and developments in the housing market have been a significant area of supervisory focus for APRA over much of the past decade.

“Housing lending has historically demonstrated a low and stable risk profile compared with other lending exposures in Australia,” Mr Byres said.

“However, for some time APRA has seen increasing evidence of residential mortgage lending with higher risk characteristics by Australian ADIs,” he said.

PROMOTED CONTENT


“Publishing this guidance is part of our ongoing effort to reinforce sound lending practices. The guidance should assist ADIs to provide strong oversight and rigorous risk management of their residential mortgage lending.”

The guidance is a continuation of APRA’s supervisory oversight of bank mortgage lending portfolios, which in recent years has included more extensive data collections, on-site reviews on mortgage lending, targeted reviews on serviceability standards, and a comprehensive stress test focusing on potential risks in the housing market.

Earlier this year, APRA also sought assurances from boards of the largest mortgage lenders that they are actively monitoring lending standards.

APRA warns banks of third-party risks
mortgagebusiness

Latest News

Mortgage Business’ sister brand The Adviser’s Australian Broking Awards 2021 recognised the crème de la crème of the mortgage and fina...

Australian capital city dwelling prices will peak in the first half of 2022, according to a research firm, which has tipped further APRA int...

The Customer Owned Banking Association has welcomed moves for greater banking regulations, suggesting a regulatory initiatives grid could be...

Join Australia's most informed brokers

Do you know which lenders are providing brokers and their customers with the best service?

Use this monthly data to make informed decisions about which lenders to use. Simply contribute to the survey and we'll send you the results directly to your inbox - completely free!

Do you think APRA's bank buffer changes will see more borrowers use non-banks?

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.