The biggest threat to the property market just got scratched out.
Peace has been declared. I really thought we’d be making a bigger deal about this.
I guess most people aren’t property nerds like me, so most people probably missed this, but the big news is that APRA is laying down its arms.
The war started back in 2016, when APRA – the financial regulator – declared that it was cracking down on the banks’ lending practices. It wanted them to go harder on investors in particular, issue fewer interest-only loans, and get much tougher with their serviceability calculations.
With bombs falling all around them, the banks went running for cover. Property owners and investors were caught in the cross-fire. Many investors with solid credentials and sound investments in front of them could no longer get the credit they needed.
The resulting credit freeze almost crashed the property market.
But now, APRA have officially declared that the war is over. Bank lending standards aren’t going to be such a priority in the year ahead.
That’s the word from finance industry mag Banking Day:
Crisis management and “resolution and recovery” have worked their way to the top of APRA’s list of priorities over the year ahead.
An old favourite – the industry’s lending standards – will be a lesser priority for the banking regulator in 2020.
APRA said it “continues to closely monitor dynamics in the housing market, given the implications for banks’ credit risk profiles and the broader financial cycle,” in an outline of its priorities in an information paper released yesterday.
“In recent years, bank lending standards – particularly in relation to residential mortgages – have been a key area of supervisory attention,” APRA said.
“Given improvements in this area, lending standards will receive relatively less attention in the period ahead, with the focus shifting to strengthening end to end risk management.”
APRA will commission “an in-depth targeted review of processes for managing problem loans and collateral”.
This review “will examine whether credit systems and processes would be effective in managing the potential risks from less benign economic conditions”.
The review will focus on the largest banks and is expected to be undertaken in the second half of 2020, APRA said.
Thinking about the next (and overdue) downfall in Australian banking, APRA said “ensuring that ADIs maintain their financial resilience and enhance their crisis readiness is a priority in APRA’s supervision”.
APRA said it would “continue to review risk management to ensure this is underpinned by strong and effective frameworks, controls, systems and practices.
“APRA’s review programme in the year ahead will encompass liquidity risk, credit risk modelling and data management, as well as monitoring improvements in business and residential mortgage lending.”
There’s that word “resiliency” again. #1 buzz-word of 2020.
But this is a very clear indication that the thaw in credit conditions is going to run to completion.
And that means banks can lend freely again, and good investors and home-owners won’t have any worries about getting the credit they need.
The war is over.
Somebody give me a ticker-tape parade.