APRA mortgage scrutiny to continue into 2016

The prudential regulator has affirmed that its scrutiny of mortgage lending will continue to be a key feature of its supervision activities in the 2016 financial year.

In its 2015 Annual Report, released yesterday, APRA noted that its 10 per cent investor loan growth benchmark was intended to generate some moderation in the plans of those Australian banks looking to grow particularly rapidly, without unduly slowing growth across the industry as a whole.

The regulator noted that at the end of the 2015 financial year the growth in investor lending remained marginally above the 10 per cent benchmark.

“However, there has been a moderation in the previous strong upward trajectory,” the report said.

“Assuming ADIs broadly meet their plans and investor lending continues to grow at around 10 per cent, this type of lending will still be the fastest growing of the major classes of credit for the foreseeable future, and will be growing at, in broad terms, around twice the rate of nominal GDP,” it said.

“Continuing scrutiny of mortgage lending will continue to be a key feature of APRA’s supervision activities in 2015-16.”

The report highlighted that the Australian banking industry continued to consolidate in 2015 financial year.

“This continues a trend of increasing concentration evident for the past decade, driven by a combination of the global financial crisis, consolidation in the regional and smaller ADI sectors, and foreign bank branches scaling back in Australia,” it said.

According to APRA, there are now 161 ADIs, comprising 73 banks, 7 building societies, 75 credit unions and 6 other ADIs.

“Over the past decade there has been a small but reasonably steady influx of new entrants into the ADI industry, although this has been insufficient in number to offset mergers and exits,” the regulator said.

“New entrants have primarily been foreign-owned ADIs and remain a relatively small part of the industry.

“As a result, the share of industry assets held by the largest institutions has continued to increase.”

At the end of June 2015, the assets of the top five Australian banks accounted for 79 per cent of industry assets; in comparison, this proportion was 69 per cent a decade earlier, according to the APRA report.

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