The CEO of a big four bank has outlined the impact of capital changes and APRA lending curbs on the economics of the Australian mortgage market.
Speaking at the 2015 Aussie Sales Conference in Melbourne yesterday, Westpac chief executive Brian Hartzer admitted that ongoing changes in Australian lending will reshape the market.
“Things are changing,” Mr Hartzer said. “You cannot assume that the current economics and volumes will continue, because we have had a significant increase in the amount of capital we have to hold for mortgages in particular. These are material increases and they affect different parts of the business as well as mortgages.”
Meanwhile, the prudential regulator’s concerns around the growth in loans for property investment have already resulted in mortgage repricing.
Last month, NAB raised the rate of its interest-only loans by 0.29 per cent, effective on new loans this week and on existing loans from 10 September.
Westpac capped LVRs on all standalone investment lending at 80 per cent, while CBA repriced its investor loans by 27 basis points, effective this week. ANZ announced the same increase, which also went into effect this week.
APRA’s primary concern is about responsible lending, Mr Hartzer said.
“They are concerned that consumers don’t take on more debt than they can service in a situation where interest rates rise at some point in the future or house prices fall. So they are wanting to make sure that we are managing our business in a responsible way.”
Mr Hartzer stressed that these changes are “very material pressures” for the Australian mortgage industry.
His comments come after tighter banking regulation has forced major banks to begin tapping shareholders for billions of dollars in additional funds in an attempt to meet capital requirements against their residential loan books.
Last week, ANZ raised $3 billion to meet its CET1 capital ratio requirements. The move follows NAB’s $5.5 billion capital raising in May. Westpac also raised $2 billion in May through its dividend reinvestment plan.
Analysts are anticipating CBA, which holds the largest residential loan book in the country, to raise up to $5 billion today via a rights issue.