Over the past 12 months, APRA has acted to rein in investor lending as well as requiring Australian banks to hold more capital against their mortgage books and both measures have had some impact on both the ability to access investment loans and the interest rates they carry.
While those moves may have had an impact on investors across Australia, APRA chairman Wayne Byres said the regulator was committed to ensuring Australian banks can withstand the next round of global economic upheaval when, not if, it reaches Australia.
“Australia has long benefited from a sound financial system, and the financial system has benefited from Australia’s long period of economic expansion. But we cannot be complacent about the risk of shocks to that prosperity,” Byres said during a speech at this week’s AFR Banking & Wealth Summit.
“When those shocks arrive – as they inevitably will – we need to not only have a strong financial system, but one that is resilient in the face of adversity,” he said.
While the effects of the Global Financial Crisis may not have been as severe in Australia as they were elsewhere, Byres said Australia had had some luck in that respect and borrowers and lender shouldn’t believe such an event couldn’t occur here.
“Thankfully, Australia has avoided the worst of the problems that have been experienced elsewhere. To a large extent, that is the product of a sensibly managed financial sector, good policy settings over a long period of time, and rapid and significant public sector support in the financial sector’s hour of need,” he said.
“But there’s also been a healthy dose of luck involved, and we shouldn’t kid ourselves that the worst of the problems could never occur here.”
While not suggesting Australia is not facing an imminent threat from the impact from an event such as GFC repeat, Byres did say regulators were monitoring similar concerns now as they were a decade ago.
“If you go back and read my predecessor John Lakers speeches in 2006 and 2007 many of them are kind of almost eerily similar to some of the things we’ve been saying recently.
“The issues that were on the radar screen then, buoyant housing lending, commercial property lending standards are all things that are on our agenda again.”
Byres said the efforts to increase the resiliency of Australian banks will keep APRA “busy for a little while yet,” with the nature of the Australian banking system meaning the regulator has to prepare for worst-case scenario.
“When it comes to the provision of credit in Australia, the regulated sector dominates the unregulated sector. Within that, banks dominate the regulated sector. And the four major banks dominate the banking sector. They are also highly correlated. For that reason, the rest of the world often sees Australian banks as peas in a pod.
“So probably more so than in other jurisdictions, it will be necessary to design Australian arrangements with the idea of systemic, as much as idiosyncratic, problems in mind.”
