Banks Too Cautious, Say Regulators

Posted on 21/12/2018  
Banks Too Cautious, Say Regulators

The nation's biggest financial regulators say the major banks are being "overly cautious" in their lending decisions, after the royal commission created pressure to scrutinise customers more closely.

Amid concerns about the potential economic harm caused by tighter credit conditions, regulators reaffirmed the importance of banks continuing to lend money as they change their processes in response to the royal commission into misconduct in the finance sector.

The Council of Financial Regulators (CFR) says the tightening in bank lending standards in recent years has been "appropriate" and has "strengthened the resilience of the system". However, it also signalled a concern about credit being tightened too much.

"Members agreed on the importance of lenders continuing to supply credit to the economy while they adjust their lending practices, including in response to the royal commission," the CFR said following its regular quarterly meeting.

"Members discussed how an overly cautious approach by some lenders to incorporating relevant laws and standards into loan approval processes may be affecting lending decisions."

The CFR is made up of the Australian Prudential Regulation Authority (APRA), the Australian Securities and Investments Commission (ASIC), the Reserve Bank of Australia (RBA) and the Treasury. It is chaired by RBA governor Philip Lowe and recently decided to issue a public statement after each quarterly meeting.

The banking sector is likely be spared tough constraints on its ability to lend as part of a Federal Government response to the royal commission aimed at protecting the housing market from further deterioration.

Treasurer Josh Frydenberg says he will do nothing to restrict the “free flow of credit”.

Speaking after handing down his first MYEFO, the Treasurer said changes were already under way to rectify the main issues identified by commissioner Kenneth Hayne in his interim report, which made it “quite clear” banks were putting profits before people and regu­lators had been too timid in tackling misconduct.

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