APRA appears to rule out intervention in investor and interest-only lending by non-bank sector, except in emergencies
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APRA appears to rule out intervention in investor and interest-only lending by non-bank sector, except in emergencies
APRA has ruled out any “day-to-day prudential oversight” of non-banks, amid concern over new legislation.
Chairman Wayne Byres announced earlier this week that changes to the Banking Act, first announced in this year’s Federal Budget, would not bring non-banks under the strict investor and interest-only lending limits to which banks are subject.
“There is a clear threshold to be met before any rules could be applied to non-ADI lenders” noted Byres. “That (i) APRA considers that the lending by non-ADI lenders contributes to risks of instability in the Australian financial system and, (ii) APRA considers that it is necessary, in order to address those risks, to make rules covering the lending of non-ADI lenders.”
Byres argued that APRA had “no intention” of being responsible for the activities of any individual non-ADI lender; saying APRA was only interested in the sector as a whole.
A threat to funding?
Whilst Byres comments appear to let non-banks off the hook, their funding may be under threat.
APRA has been examining whether banks are using warehousing facilities and non-banks to fund risky loans they would not write themselves.
According to Byres, “warehouse exposures are relatively small, but we have observed that there is quite a high tolerance for investor and interest-only loans within warehouses - in some cases, documented eligibility criteria allow for as high as 60% of the pool in each of these categories.”
Byres did not specifically lay out plans to prevent banks providing such funding however. Furthermore, non-banks are already bound by their funders’ lending restrictions, RESIMAC and Homeloans general manager of third party distribution Daniel Carde told MPA’s Non-Banks Roundtable.
“As a group we largely originate in line with the ADIs anyway, so there’s no major change in that space,” Carde explained. “It’s more just the concern of when it will be enacted and what they’re trying to achieve with it because it is quite broad and not specific”
Shadow banking no more
In the immediate future, APRA is looking to collect information from the non-banks.
Non-banks over a certain size would be legally required to provide data to APRA, as the banks do currently, a major shift for a sector commonly referred to as ‘shadow banking’.
Data collection would be limited, explained Byres: “we are not seeking to expand our supervisory remit and, beyond collecting information that allows us to track aggregate trends in lending activity, we will not be undertaking any supervision of individual lenders.”
At MPA’s Non-Banks Roundtable, lenders appeared unconcerned about new data-collection powers. La Trobe Financial Vice President Cory Bannister told the panel that ”we see it as recognition by APRA that non-banks are potentially going to play a much bigger part in the industry than what they did in the past.”
To hear from the non-banks about APRA, investor lending, non-resident lending and more, watch MPA's Non-Banks Roundtable: https://www.mpamagazine.com.au/tv/mpa-nonbank-lenders-roundtable-2017-242127.aspx
