While Australia witnesses an immense surge in home prices and lending risks, the nation’s regulator asks big banks to moderate risky lending. The Council of Financial Regulators is also warning banks about different policy options. The options can address the risks if the household debt keeps increasing and outruns the price increase.
The council stated that the APRA (Australian Prudential Regulation Authority) has keenly watched the banks’ lending trends. The council is formed by APRA, the RBA (Reserve Bank of Australia), the Corporate Regulator, and the Treasury Department.
They further added that ARPA is writing to the biggest banks to proactively moderate risky lending and focusing on lenders’ risk competency. Currently, Australia’s household debt nation is 120% over GDP and 180% of income. While the wage growth is still low, it is counted among the highest worldwide.
Almost zero% interest rates, a relaxation in prudential oversight in previous years, and a huge financial expansion amid the health outbreak are already pushing the house prices in metropolitan cities over 10% compared to the previous peak in 2017. As per the council, the overall lending portfolio in Australia was still reasonable, highlighting how important it’s to keep it like that.
Philip Lowe (RBA Governor) stated that the case is not the same as of now. However, they discussed possible responses with the council if the housing debt threatens the economy’s financial stability. He disclosed the information in a speech delivered on Thursday. For now, regulators can opt for alternatives like:
- Limiting the loan-to-value ratio
- Restricting loan-to-income ratio
- Stopping investment restrictions
- Offering interest-only lending
While these options sound viable, they are currently not being considered.
Amid the ongoing health outbreak, Australia is now facing troubles with its lending domain. That is why the Council of Financial Regulators has asked the banks to reassess their lending schemes. They are considering different options to ensure the household debt does not affect economic stability.
