22-10-2015, 06:41 PM
Bank crackdown should have been sooner: APRA’s Wayne Byres
Michael Bennet
[Image: michael_bennet.png]
Reporter
Sydney
[b]Wayne Byres, the chairman of the Australian Prudential Regulation Authority, has revealed he wished the regulator had begun cracking down on banks “a bit sooner” to shore up weaker-than-expected lending standards.[/b]
Revealing the extent of APRA’s concerns about the housing market, Mr Byres today said while the regulator had long been alert to the risks, with the benefit of hindsight he wished “we got on to this a bit sooner”.
During APRA’s heightened supervision in recent years, Mr Byres said he was surprised by how much competitive pressures had led banks to do things “that were really in our view lacking in commonsense”.
“I think though as we’ve dug deeper … we have been a bit surprised at what we found in some places and it did seem that competition was eroding standards,” Mr Byres, who has more than 30 years’ experience at the Reserve Bank and APRA, told a Senate Standing Committee today.
The comments add to the RBA’s warning last week in its biannual financial stability review that the banking industry’s lending standards were “weaker around the turn of this year than had been apparent at the time or would be desirable in the current risk environment”.
Regulators’ concerns about heightened risks in the housing market coincide with the government’s backing this week of the Murray financial system inquiry’s two key recommendations to increase bank capital buffers, including that they have capital levels that are “unquestionably strong” globally.
The government also told APRA to “take additional steps” so banks have unquestionably strong capital ratios “by the end of next year”.
Mr Byres today said the deadline “seems quite manageable at this point in time”, notwithstanding “all the moving parts”, including the next wave of global reforms from the Switzerland-based Basel Committee.
APRA has already clarified the “big four” banks — ANZ, Westpac, Commonwealth Bank and National Australia Bank — plus Macquarie, would have to meet higher mortgage “risk weights” by July next year, as recommended by the inquiry to increase competition for small lenders saddled with stricter risk weighing rules.
The big four have this year raised about $18 billion in equity to help increase the average risk weights of their housing books to 25 per cent, up from 16 per cent.
“The additional capital is timely because banks are currently facing an environment of heightened risk in their housing loan portfolios,” the RBA said in the financial stability review.
While not directly asked about Westpac’s decision last week to hike mortgage rates to offset the cost of higher risk weights, Mr Byres said the regulatory change should “improve the competitive dynamics for the smaller banks”.
As the other major banks continue to hold out in following Westpac’s rate hike, Mr Byres also indicated regulatory changes should not result in banks changing rates by the same amounts because of the different impact on individual lenders.
It came as Ord Minnett analysts said the other big banks should “follow Westpac’s lead”.
“With major bank market share at an all-time high above 80 per cent, now is the time when banks can afford to cede some share,” the analysts told clients, noting the “commercial” political environment.
Prime Minister Malcolm Turnbull has said that while “many people” thought Westpac’s rate rise was wrong, the banks’ interest rate decisions were “ultimately a matter for them” based on several variables, including competition and the cost of their own funds.
Part of APRA’s increased efforts to shore up lending standards has been its cap on banks’ lending to property investors of 10 per cent a year, or potentially be punished with higher capital requirements.
Under heated questioning today, Mr Byres conceded there was an “element of bluntness” in the 10 per cent cap, but dismissed that it was wrongly punishing regional areas not experiencing the same heady growth as Sydney and Melbourne.
Charles Littrell, executive general manager of APRA’s supervisory support division, added it would be “dumb” for lenders to grow too strongly and faster than peers in smaller, concentrated markets.
- THE AUSTRALIAN
- OCTOBER 22, 2015 11:30AM
Michael Bennet
[Image: michael_bennet.png]
Reporter
Sydney
[b]Wayne Byres, the chairman of the Australian Prudential Regulation Authority, has revealed he wished the regulator had begun cracking down on banks “a bit sooner” to shore up weaker-than-expected lending standards.[/b]
Revealing the extent of APRA’s concerns about the housing market, Mr Byres today said while the regulator had long been alert to the risks, with the benefit of hindsight he wished “we got on to this a bit sooner”.
During APRA’s heightened supervision in recent years, Mr Byres said he was surprised by how much competitive pressures had led banks to do things “that were really in our view lacking in commonsense”.
“I think though as we’ve dug deeper … we have been a bit surprised at what we found in some places and it did seem that competition was eroding standards,” Mr Byres, who has more than 30 years’ experience at the Reserve Bank and APRA, told a Senate Standing Committee today.
The comments add to the RBA’s warning last week in its biannual financial stability review that the banking industry’s lending standards were “weaker around the turn of this year than had been apparent at the time or would be desirable in the current risk environment”.
Regulators’ concerns about heightened risks in the housing market coincide with the government’s backing this week of the Murray financial system inquiry’s two key recommendations to increase bank capital buffers, including that they have capital levels that are “unquestionably strong” globally.
The government also told APRA to “take additional steps” so banks have unquestionably strong capital ratios “by the end of next year”.
Mr Byres today said the deadline “seems quite manageable at this point in time”, notwithstanding “all the moving parts”, including the next wave of global reforms from the Switzerland-based Basel Committee.
APRA has already clarified the “big four” banks — ANZ, Westpac, Commonwealth Bank and National Australia Bank — plus Macquarie, would have to meet higher mortgage “risk weights” by July next year, as recommended by the inquiry to increase competition for small lenders saddled with stricter risk weighing rules.
The big four have this year raised about $18 billion in equity to help increase the average risk weights of their housing books to 25 per cent, up from 16 per cent.
“The additional capital is timely because banks are currently facing an environment of heightened risk in their housing loan portfolios,” the RBA said in the financial stability review.
While not directly asked about Westpac’s decision last week to hike mortgage rates to offset the cost of higher risk weights, Mr Byres said the regulatory change should “improve the competitive dynamics for the smaller banks”.
As the other major banks continue to hold out in following Westpac’s rate hike, Mr Byres also indicated regulatory changes should not result in banks changing rates by the same amounts because of the different impact on individual lenders.
It came as Ord Minnett analysts said the other big banks should “follow Westpac’s lead”.
“With major bank market share at an all-time high above 80 per cent, now is the time when banks can afford to cede some share,” the analysts told clients, noting the “commercial” political environment.
Prime Minister Malcolm Turnbull has said that while “many people” thought Westpac’s rate rise was wrong, the banks’ interest rate decisions were “ultimately a matter for them” based on several variables, including competition and the cost of their own funds.
Part of APRA’s increased efforts to shore up lending standards has been its cap on banks’ lending to property investors of 10 per cent a year, or potentially be punished with higher capital requirements.
Under heated questioning today, Mr Byres conceded there was an “element of bluntness” in the 10 per cent cap, but dismissed that it was wrongly punishing regional areas not experiencing the same heady growth as Sydney and Melbourne.
Charles Littrell, executive general manager of APRA’s supervisory support division, added it would be “dumb” for lenders to grow too strongly and faster than peers in smaller, concentrated markets.