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The APRA draft Prudential Practice Guide 223 Residential Mortgage Lending (Draft APG 223) was published in May amid concerns that lending standards were slipping.
But the Australian Bankers’ Association this week addressed APRA’s guidance with a list of concerns.
In a letter to APRA dated July 21, ABA tax and security manager Paul Stacey said that the prudential regulator’s draft guidance could have enunciated principles across each of the topic headings “without prescribing how ADIs should run their mortgage lending activities”.
The banks took issue with how excessively prescriptive APRA’s lending guidance is, “too often opting for a ‘one-size-fits-all’ approach, rather than establishing a set of principles which allow ADIs to prudently and flexibly manage credit risk within the parameters of their business models and risk appetites”.
“It should be remembered that it is as much in the ADI’s interest to manage credit risk on residential mortgage lending prudently as it is in interests of the economy,” Mr Stacey said.
The ABA noted a trend in more recent guidance notes and standards towards greater prescription.
“This trend is also evident in Draft APG 223 and relates to a number of areas including risk management framework, loan origination, valuation, hardship and collection, and also in relation to the requirements of the board,” Mr Stacey said.
“Excessive prescription tends to translate into additional compliance cost, given that different ADIs have different processes and risk appetites,” he said.
The ABA also highlighted that APRA’s lending guidance fails to complement and align properly with ASIC guidance, thereby “confusing rather than guiding”.
“ASIC guidance is appropriately focused on ‘the individual loan level’, as is consistent with its consumer protection mandate,” Mr Stacey said.
APRA guidance should be focused on ‘the portfolio level’ which is consistent with its system protection mandate, he said.