Banks must keep lending: Josh Frydenberg

21 Dec 2018 - by John Kehoe of Australian Financial Review

Federal Treasurer Josh Frydenberg has delivered a festive-season public message to banks to ensure healthy lending flows to households and small business, in order to avoid a royal commission-induced credit squeeze that could crimp the economy

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Small business annual credit growth slowed to below 3% in the September quarter, half of the 6% expansion in early 2016 and well below the 20-year average of 8 per cent, based on figures on loans below $2 million compiled by the Reserve Bank of Australia.

Some banks have become more circumspect about lending, though some small business operators have also reduced demand for loans because of the falling value of personal homes. Typically, small business owners use their home as collateral for secured lending from banks.

Amid concerns that front-line branch staff are becoming more conservative in reaction to the royal commission's crackdown on responsible lending laws. Mr Frydenberg told AFR Weekend that he did not want to see an impact from slower credit growth on the real economy.

While credit growth has slowed, driven particularly by a decline in investor demand, we do not want to see a spillover impact on the real economy, " Mr Frydenberg said

If financial conditions tighten further and there is excessive risk aversion on the part of the banks following the royal commission it could disrupt the healthy levels of household spending and investment we see today.

" To avoid these risks, the banks need to balance their responsible lending obligations with the need to keep credit flowiing providing much-needed access to finance for families and businesses. .This does right to the heart of the critical role banks play in the economy.

Council of Small Business of Australia chief executive Peter Strong said"money has dried up' from banks to small firms.

The royal commission has spooked people and probably the banks are now waiting for the final report to see what it all means, " Mr Strong said"

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If Treasurer Josh Frydenberg has told banks to pull their heads in and start lending again and coupled with the regulator lifting restrictions on banks' ability to issue interest only loans (no more caps), will we see credit flowing through the economy again in terms of lending for interest only borrowers/investors and developers? What's your opinion?

 

How can the banks keep lending when APRA is putting on new restrictions. While Royal Commission tells them that they are at fault for providing funding to people who lie on their applications.

 

But APRA has announced it is lifting restrictions on banks to issue interest only loans . Annoucement made just before Christmas. Christmas present and a bit of good news?

Banks will soon be able to issue interest-only loans without restriction

APRA to remove banks' interest-only lending restrictions
By business reporter David Chau
Updated 19 Dec 2018, 3:32pm

The financial regulator will lift restrictions on interest-only residential lending from January 1 in an attempt to stabilise Australia's ailing housing market.

The Australian Prudential Regulation Authority (APRA) imposed the restrictions in March 2017 to force lenders to limit new interest-only lending to 30 per cent of home loans that they issue.

Australia's median property price experienced its sharpest drop since the global financial crisisearlier this month, with capital city values falling 0.9 per cent.

Sydney and Melbourne, the capitals that enjoyed the biggest property booms, were hit hardest — falling by 9.5 and 5.8 per cent from peak to trough.

It is the second lending restriction APRA has relaxed this year.

In April, the regulator removed a "speed limit" that it had imposed on lenders since 2014, requiring them to keep investor credit growth below 10 per cent each year.

"APRA's lending benchmarks on investor and interest-only lending were always intended to be temporary," APRA chairman Wayne Byres said.

"Both have now served their purpose of moderating higher risk lending and supporting a gradual strengthening of lending standards across the industry over a number of years."

PHOTO: The difference in borrowing costs between owner-occupier and interest-only loans widened after APRA's restrictions. (RBA, JP Morgan)


The regulator touted its success in reinforcing "sound lending practices".

"The introduction of the benchmark has led to a marked reduction in the proportion of new interest-only lending, which is now significantly below the 30 per cent threshold," APRA wrote in a statement.

Not a 'monumental' change
But property analysts believe APRA's latest move will have very little impact on property prices, which are expected to continue falling in most states.

"I don't know these changes are really that monumental," CoreLogic's head of research Cameron Kusher told ABC News.

"If you look at lending to interest-only borrowers, it's [already] sitting at about 16.5 per cent of new lending, when the cap is 30 per cent."

"What it might do is make it easier for people who are coming to the end of their interest-only mortgages — or are getting into financial hardship — to refinance with a normal lender, without going to the non-bank sector."

PHOTO: The level of interest-only borrowing has fallen since APRA introduced restrictions in 2017. (RBA, JP Morgan)


Borrowers could potentially benefit from cheaper interest-only loans, said JP Morgan's chief economist Sally Auld.

"Interest-only loans were repriced quite significantly [higher] in the wake of this regulation, so there will likely be some reduction in rates for these loans," she said.

"But with dwelling prices still falling ... and lending standards tighter, marginally lower rates will unlikely result in a quick acceleration in interest-only lending."

Mr Kusher believes any major changes to the industry will happen after the banking royal commission releases its final report in February.

"I'm a little bit surprised the announcement has come out before we got the final report," he said.

"Maybe it's just a case of APRA wanting to provide some good news to the market before Christmas."

Follow David Chau on Twitter @chaudave.

 

The issue is no longer IO or PI, it's banks are too scared to lend money because anything that goes wrong will be used against them

 

Or they are punishing the government for the Royal Commission...

 

Exactly right. Banking royal commission has broken what will take generations to fix.

Bankers being dragged into legal system and being threatened with personal liability and criminal charges - some of those may actually eventuate.

Bankers are 9-5pm employees. If this continued, banks will struggle finding people to work for them.

 

The CEO of big 4 banks right now are being paid we'll. But compared to their predecessors and over see counter parts not so much.

Then they are looking at all the stress, pressure and incoming personal liability.... geez, better off being a law partner or doctor or builder!!!

 

One part of the government says keep lending, another govt department is restricting it. Difference is banks cannot say “but Josh told us to keep lending” when APRA are imposing opposing legal requirements. Any relaxation of credit needs to come from APRA.

 

It totally ignores the issue with serviceability of home loans.
Since the late 80s we have slowly watched household incomes go from 1 to 2 incomes that are required to pay of a mortgage .
At some point ,as house prices outstrip wage growth we were going to reach the limit at which many wage earners on 2 incomes can service a home loan .
Add a bit of creativity with IO loans,strong immigration and allowing wealthy foreigners to buy property in Australia kept the ball rolling , but where to next .
Do we allow polygamy to bring in a 3rd income , or do we go back to allowing wealth foreigners to keep on buying up property in Australian.

 

I reckon it won't be long before banks will be lending as they used to and they'll be up to their old tricks eg :

Me: I need some money to buy a scabby old place in Mt Druitt.

Bank: Just sign here Datto and take our money. Oh and on your way out grab a $5K credit card for crying out loud. Geez, and get a haircut from the barber across the road, he's gonna need all the customers on the planet to service our business loan lol.

 

We will all know the outcome in about a months time .
It was reported in the early days of the royal commission that they were trawling through thousands of successful mortgage applications from previous years and comparing them with actual real data , not sure if they had access to ATO data and other ways to follow up and then compare data that was used during the application process of a home loan.

 

Another treasurer who doesnt know what he is talking about.

Of course with the new rules and proper regulation lending is no longer going to be as free flow easy. But there was growth in housing loans last month after months of negative growth.

Any slowdown in the previous booming loan growth is of course gonna flow on to the economy, no two ways about that.

He is also forgetting the big drop in foreign monies coming in and effects the current slowdown in china has due to trade wars

 

The Australian economy needs a healthy growing housing market. Investors win, the banks win, the government wins, FIrst Home Buyers wi.........er....well at least it gives them something to whinge about.

 

But how does the housing market keep growing if wage growth stops growing or slows right down , like 6 years ago.
At some point many are forced to cut back on spending and eventually banks wont even lend to many that cannot service the loan.

 

You are 100% not understanding what Josh's position is.
He is a public figure.

Of course he understands the guys is as as smart as they come. It's all about public reaction and perceived reaction from the public.

Politicians can rarely say what they think.

 

Takes longer to pay.
Becomes a renters market in Syd and Mel in some small parts.

If you look at Sydney you buy a house within a stone through of Liverpool Station.=$640,000 This does not exist in say Shanghai .

You can buy a 2 bedroom until in Lekemba 10 min from the station and be in the city by train in 20 minutes for $400,000. This is cheap by Vancouver or Toronto standards.

No every on will live in Toorak or Bondi. Some will lower their expectations.

 

Cheap compared to Dublin in 2007 too...

 

Maybe have a think about all the shareholders ,or super funds ,self managed funds that have large % assets invested within the big small 8 Australian banks ,they would all be over the moon that something has finally happened and down over 25% from the previous highs..

 

Good point. I think the property market takes a short breather till everything catches up. Once all the planets line up again then you get strong growth in the housing market.

Sure, things like a recession or overseas factors may make that short breather longer.

And just on that wage growth, workers are getting peeved with the pittances that are handed out as wage rises and the cuts to working conditions. The unions have to listen and there are rumblings starting already.

Things can change quickly eg CBA share price up $4 in a week. Institutional investors are making big money I bet.

 

coming weeks will be bad unless the trade wars stop. Recession in 2019 could be a big possibility.