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It has been confirmed that APRA will intervene on home loans. This happened on the same day that S & P / ASX 200 Index (ASX: XJO) banks are falling.
What is APRA?
To put what happened in context, the Australian Prudential Regulation Authority (APRA) is a regulatory body that oversees institutions in Australia’s banking, insurance and other financial sectors.
It is part of the Council of Financial Regulators, a coordinating body of Australia’s major financial regulators. There are four members, the APRA, the Australian Securities and Investments Commission (ASIC), the Australian Treasury and the Reserve Bank of Australia (RBA).
The objectives of the Council are to promote the stability of the Australian financial system and to support effective and efficient regulation by Australian financial regulators.
This morning, the Council issued its quarterly statement for September 2021 following a meeting.
He discussed a number of issues including the pandemic, the recovery and “housing market risks”. Australian Treasurer Josh Frydenberg attended parts of the meeting.
What will APRA do?
During the meeting, the Council discussed the conditions of housing credit and the associated risks. He notes that home loans increased in the first half of the year, from both homeowners and investors. The lockdowns have reduced transactions and new listings, but prices continue to rise “sharply”.
The Council said it was aware that a period of credit growth significantly exceeding household income growth would increase the medium-term risks facing the economy. However, he noted that lending standards remain healthy.
Possible policy responses were discussed. APRA will continue to consult on the implementation of any specific measures. Over the next two months, APRA plans to release a backgrounder on its policy implementation framework.
This could be important for many ASX 200 banks as they underwrite billions of dollars in home loans each year and have large loan portfolios exposed to the residential real estate loan market.
Yesterday it was reported by the Australian Financial Review that regulators were looking at increasing debt-to-income ratios, with the blessing of the treasurer. In the three months leading up to June 30, 2021, more than a fifth of new mortgages were made to borrowers who took on debt at least 6 times their income.
How does this affect ASX 200 bank stock prices?
In view of the current situation, the share prices of Commonwealth of Australia Bank (ASX: ABC), Westpac banking company (ASX: WBC), Australia and New Zealand Banking Group Ltd (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) are down.
Smaller banks are also in the red. The Bank of Queensland Limited (ASX: BOQ) the stock price is down 1%, the Suncorp Group Ltd. (ASX: SUN) the stock price is down 0.4% and the Bendigo and Adelaide Bank Ltd (ASX: BEN) the stock price is down 1%.
However, ASX 200 banks are recovering from an early morning decline where the ASX 200 as a whole fell more than 1%, which could be the main reason for the decline in the banking sector.
Some of the big banks themselves have called for action on lending before the housing market and lending get too far.
CBA CEO Matt Comyn has done a few comments to the House of Representatives Standing Committee on Economy, expressing concern about the housing market:
As the RBA observed, activity in the housing market remains very strong, even after prolonged shutdowns in the two largest markets. We continue to monitor these developments closely and have made adjustments to our lending parameters. We are also carefully considering the impact of these dynamics on particular cohorts of mortgage borrowers, including first-time buyers.
The ASX 200 bank recently increased its service buffer rate by assessing the rate borrowers would be able to repay.
According to report through REA Group Limited (ASX: REA), Mr Comyn also told the committee:
It is much more difficult to act when the market is accelerating than it is to take interventions to try to avoid too much acceleration. I want to be clear, I’m not concerned with where we are today, but based on the acceleration, I think it would be prudent to act as soon as possible.