ASX 200 bank focuses on planned loan crackdown
Image source: Getty Images
Fears of a housing market collapse continue to grow as prices rise and debt rises. Today, ASX 200 bank stocks will be in the spotlight after the government gives the green light to regulators for cracking down on mortgage lending.
The move comes just weeks after Reserve Bank of Australia Governor Philip Lowe reiterated that the central bank would not raise interest rates in a bid to regulate the housing market. Instead, Lowe urged regulators to step in and take responsibility.
Any new regulations could impact ASX 200 banks. After all, about 60% of their loans come from housing.
What could ASX 200 banking stocks weigh?
Investors in Australian banks are waking up this morning to the news of potentially stricter regulations on mortgage lending.
According to The Australian Financial Review, Treasurer Josh Frydenberg gave the green light to regulators for a repression in the booming market. Specifically, high debt ratio home loans are the focus of concern, as historically low interest rates encourage large borrowing.
The signal follows reports that more than one in five buyers borrows more than six times their annual income.
Clearly, this is a risk in the eyes of regulators like the Australian Prudential Regulation Authority. While not a concern right now, rising interest rates could exacerbate mortgage lending difficulties in the future.
As stated in FRANCE, Frydenberg explained the dynamics of housing in Australia, saying:
With the Australian economy well positioned to recover strongly as restrictions ease, it is important to continually assess the relevance of our macroprudential metrics.
We need to be mindful of the balance between credit and income growth to avoid the build-up of future risks in the financial system. Sometimes carefully targeted and timely adjustments are necessary. There are a range of tools available to APRA to achieve this result.
At this point, no action has been taken regarding the credit restrictions placed on ASX 200 banks. However, regulators are expected to collect more data on loans in the meantime in order to make a more informed decision. .
Any action would probably focus on the amount of debt / income multiple, as opposed to other facets of the loan. Interestingly, the amount of home loans with loan-to-value ratios over 90 has been declining since 2008.
Sooner rather than later
The largest ASX 200 bank, Commonwealth of Australia Bank (ASX: CBA), has increased its service criteria for its home loans. Loan seekers are now valued at an interest rate of 5.25%, up from 5.1% previously. It’s a move CEO Matt Comyn thinks other banks should take as well.
We think it would be important to take some small steps as soon as possible to ease the housing market a bit.
In terms of regulatory options, the International Monetary Fund highlighted a few in its semi-annual report. These included increasing interest service buffers and implementing restrictions on debt-to-income and loan-to-value ratios.