Well, finally, we got an admission from APRA that mortgage lending standards have decayed over the last decade, and that they needed to take action to reverse the trend. And now they are looking at debt-to-income.
Poor lending standards, they say are systemic, driven by completion, and poor bank practices. They recently intervened (a little). And late to the piece (now) debt-to-income is important. Did you hear the door slamming after the horse has bolted?
This is after ASIC called out poor lending practices, and the RBA have been raising concerns about the high household debt, and the downstream risks to growth this represents.
A completed change of tune from the declarations of 2015 when everything was said to be just dandy!
Those following this blog over the past few years will know we have been flagging these concerns, especially as the cash rate was brought to its all time low. We said DTI was critical, that standards should be tightened, and the growth of debt to income was unsustainable.
These three parties, plus the Treasury form the “Council of Financial Regulators” which is chaired by the RBA are all culpable. This body, which works behind the scenes, is referred to when hard decisions need to be take. If you look back at recent APRA and RBA statements, the Council gets a Guernsey!
The problem is there has been group-think for year, driven by the need to use households as a growth proxy for the failing mining and resource sector. And no clear accountability.
But too little has been done, too late. And it is poor old households who, one way or the other will pick up the pieces – not the banks who have enjoyed massive profit and balance sheet growth.
Even now, lending for housing is growing three time faster than incomes or cpi.
Regulators are now lining up to call out the problems. Managing the risk going forwards is a real challenge. Time to review the regulatory structure.
Worth remembering that the Financial System Inquiry recommended the creation of a new Financial Regulator Assessment Board to assess the performance of the regulatory framework, but this was rejected by the Government!
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