In a speech this week, the senior executive warned government not to add complexity to the loan assessment process
Anna Bligh marked on Tuesday her first year as CEO of the Australian Banking Association (ABA) – but said she feels “like 500 years” have already passed.
In a speech at the AFR Banking and Wealth Summit held yesterday (4 April), the chief executive said the last year has seen the country’s banks confronted with a new tax, and more scrutiny and intervention on top of the 50-odd inquiries and reviews they have faced since the global financial crisis.
Now with the royal commission underway, “without doubt, we have seen some compelling evidence of failures”. But she said some of these issues have already been addressed and remediated by the banks.
The banks face a challenge: they need to lend prudentially and responsibly, be careful and diligent when assessing a customer’s suitability for credit, while also not holding back credit unreasonably or making the process unduly onerous, she said.
The temptation is strong for governments to add complexity and weight to the assessment process to guard against failure, she added.
“At worst, this temptation can tighten access to credit and make it more expensive – this would be a poor outcome for the overwhelming number of customers for whom buying a house is their best financial decision.”
She warned that tightening access to credit could push vulnerable customers out of the regulated banking world and into the far riskier sector of pay day lenders.
“We will all look on with interest as the royal commission does its work and reaches its conclusions. As we do, we should hope that the more measured and sober environment of the judicial setting will produce a more reasoned and balanced outcome for customers and for the system than the overheated corridors of our current federal parliament.”
Transformations are often painful as the old gives way to the new, according to Bligh. But people need to see them as an opportunity.
“An opportunity for a major reset, not only in how we do banking but how we think about it, its place in our lives, its role in our economy and, most of all, its trustworthiness," Bligh said. “I look forward to the next twelve months with enthusiasm."
As banks improve their assessments of each credit application and as Comprehensive Credit Reporting is rolled out, UBS said it could lead the banks to constrain credit and significantly tighten income assessment measures, lifting HEM to more realistic levels.
“While a tightening of mortgage underwriting standards is prudent, especially as the banks move to fully complying with responsible lending, it has a material impact on the economy.
It must be remembered that house prices are determined by the demand and supply of credit, not the demand for and supply of housing,” the analysts wrote.
