Banks ramp up risky lending, numbers reveal

Still, financial regulators are unlikely to worry

Banks ramp up risky lending, numbers reveal

The Australian Prudential Regulation Authority on Tuesday released its quarterly Authorized Deposit-Taking Institution (ADI) Performance publication – including detailed figures on banks’ exposure to residential property, the sector’s biggest source of loans.

Both the stock of outstanding loans and new loans funded increased over the December 2021 quarter, the APRA reported.

New lending with high debt-to-income ratios – particularly to people borrowing more than six times their income – increased to 24.4%, up from 23.8% in the September quarter and 17.3% the previous year.

Late last year, the APRA reminded banks to “review their risk appetites” in this part of the market.

The data also showed an increase in the proportion of lending to customers with deposits of 10% of the purchase price or less, with the share of new lending with LVR of 90% or higher up to 7.9% from 7.5% in the September quarter, albeit following a decline in the three previous quarters.

Despite the increases, the APRA noted that the rate of growth in the quarter had slowed.

“I think that will be comforting to some extent to APRA,” said CoreLogic research director Tim Lawless, “that we are not seeing an acceleration in high debt-to-income lending.”

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RateCity research director Sally Tindall added it was not surprising risky lending had increased, given house prices had “skyrocketed.” Like Lawless, Tindall did not expect further intervention in mortgage lending from the APRA.

“With property prices already starting to cool, and the RBA poised to hike interest rates, APRA is unlikely to implement any further measures,” she said.

Overall, new residential mortgages funded in the December 2021 quarter jumped by a third (33.4%) from December 2020 quarter’s $128.1 billion to $171 billion.