“We have therefore chosen to address our concerns on a bank-by-bank basis, rather than opting for any form of macroprudential response. We expect that changes in lending policy at these banks, coupled with rising interest rates, will see the elevated level of DTI borrowing begin to moderate over the coming period,” Mr. Byres said.
APRA considers a DTI of more than six times high and warned banks last October to limit lending to highly indebted customers.
No more low risk
The Sydney Morning Herald reported this week that National Australia Bank had this month cut its debt-to-income ratio (DTI) limit by nine to eight times, while ANZ Bank said it would no longer accept loan applications from borrowers whose total debt was more than 7.5 times their income, down nine times.
ANZ’s head of retail banking, Maile Carnegie, told the Summit that its reduction in the DTI cap was partly a response to APRA, although she added that few loans were made at the level of the ceiling.
Overall, the APRA chairman said banks were well positioned to weather a tougher environment “and we don’t expect deterioration in housing loan portfolios to cause system stability.
Moreover, an expected decline in house prices is, overall, “a positive development from a system stability perspective, reducing the need for borrowers to borrow very high multiples of their income”.
Nevertheless, caution is in order – and APRA no longer views real estate loan portfolios as a ballast against riskier commercial loans.
“Total dollar losses from housing portfolios now consistently exceed those from other portfolios in our stress tests,” he told the Sydney Summit. “Of course, this may simply be a product of the stress test calibration itself, but more intuitively it reflects the combination of an increasing proportion of housing loans in the total portfolio and increasing risks within these portfolios from a larger share of more heavily indebted borrowers.
On climate, another major area of focus for banks, Mr Byres said the climate risk governance self-assessment conducted by the 21 largest banks had been broadly positive. “They showed that almost all boards had accepted their responsibility to actively monitor climate-related risks,” he said. APRA will publish a report on the self-assessments in July.
However, APRA found that only half of the banks surveyed currently assess issuances of their loan exposures, known as Scope 3 issuances. Mr Byres acknowledged that issuances data made this difficult – but not doing so created two challenges.
“First, it’s difficult for banks to fully understand how borrowers will (or won’t) be impacted by the transition to a low-carbon world,” he said. “And second, it is difficult for banks to meet the growing demands from investors, standard setters and peer regulators for greater climate risk disclosure.”
Discussions with international investors in Australian banks highlighted demands for “greater transparency on climate-related risks and opportunities, and to be more sophisticated in response to what they see as poor risk management change, with a strong preference for more active engagement and defense of shareholder interests, rather than simply opting for divestment”.
Overall, Mr Byres said Australian banks are well capitalized, in historical and international terms, and have a stronger funding profile than in previous years, while still remaining very highly rated with good access to credit markets. international funding.