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BFCSA investigates fraud involving lenders, spruikers and financial planners worldwide.  Full Doc, Low Doc, No Doc loans, Lines of Credit and Buffer loans appear to be normal profit making financial products, however, these loans are set to implode within seven years.  For the past two decades, Ms Brailey, President of BFCSA (Inc), has been a tireless campaigner, championing the cause of older and low income people around the Globe who have fallen victim to banking and finance scams.  She has found that people of all ages are being targeted by Bankers offering faulty lending products. BFCSA warn that anyone who has signed up for one of these financial products, is in grave danger of losing their home.


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BFCSA: APRA's Wayne Byres says there is no evidence of a mortgage credit crunch

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APRA's Wayne Byres says there is no evidence of a mortgage credit crunch

Australian Financial Review Jul 11 2018 1:00 PM

Jonathan Shapiro


A multi-year crackdown on home loan lending standards does not appear to be hurting credit growth, and by extension the economy, according to the chair of the prudential regulator who revealed the banks could withstand the double impact of a dramatic economic shock and a misconduct scandal.

Australian Prudential Regulatory Authority chair Wayne Byres said it's "difficult to tell" whether the regulator's actions to improve lending standards at the banks was impacting the flow of credit, but he said "the changes in lending practices to date do not seem to have had an obvious impact on housing credit flows in aggregate."

"Total housing lending grew at around 6 per cent in the year to May 2018, which is only marginally below long-run averages and roughly in line with the average run rate since 2011," he told an audience of economists in Sydney on Wednesday.

Mr Byres said the cumulative growth in credit in the three and a half years since APRA intensified its focus on lending standards was greater than the credit growth in the preceding three and a half years.

"Credit growth appears to be slowing somewhat at the moment, but that is not surprising in an environment of softening house prices and rising interest rates," Mr Byres said in a speech titled 'Preparing for a Rainy Day'.

Mr Byres also pointed to the relative strength of lending to owner occupiers, which has grown at three times the rate of household incomes, during a "period in which lending policies and practices have been gradually strengthened."

Improved lending standards

The comments may alleviate growing concerns that tighter lending standards and the fallout from the Hayne royal commission will cut the supply of credit to households, hurting the economy and aggravating a slowdown in the housing market.

Since Mr Byres took the reins at APRA, the prudential regulator has increased its scrutiny of lending standards, which it said had eroded due to competitive pressures.

Their efforts had led to a reduction in high loan to value ratio lending, and a slowdown in investor and interest only lending.

"These trends in higher risk lending, however, only tell part of the story. They have also coincided with a strengthening in the rigour with which banks assess borrowers' ability to service and repay their loans."

Mr Byres said a review conducted in 2016 found three areas that needed improvement and have been addressed. They were: more accurate assessments of borrowers' incomes and expenses, better verification of existing debt commitments and increased oversight around exceptions to lending policies.  

Stress test results

Mr Byres also provided an update on a stress test conducted in 2017 in which the banks were asked to assess their resilience to a macroeconomic shock amplified by operational challenges resulting from misconduct and mis-selling.

The hypothetical scenario described a downturn in China that triggers a collapse in demand for commodities and results in credit rating downgrades, a closure of funding markets, a sell off in the Australian dollar and a blow out in credit spreads. In this scenario, Australian GDP falls by 4 per cent, unemployment doubles to 11 per cent and house prices decline by 35 per cent nationally over three years.

APRA then "added a twist" in which the banks face additional losses relating to misconduct and mis-selling of residential mortgages.

Under such a scenario, the stress tests projected the banks would be hit with $40 billion of residential mortgage related losses, or a quarter of total losses – "broadly consistent with the experience in the UK in the early 1990s, but lower than the losses seen in Ireland or the US during the global financial crisis."

This, Mr Byres said, was an improvement compared to the 2014 stress test, which he said is a result in differences in modelling but "arguably reflective of the improvement in asset quality in recent years."

The losses would wipe about 3 percentage points off the banks' Common Equity Tier I ratios over three years, from 10.5 per cent to 7 per cent driven by "a combination of higher funding costs, significant credit losses and growth in risk weighted assets reflecting the deterioration in asset quality."

And the twist

The misconduct twist, Mr Byres said, would push Tier I ratios, a key measure of financial strength that compares equity capital to risk-weighted assets, down to just below 6 per cent.

"Despite significant losses, these results nevertheless provide a degree of reassurance: banks remained above regulatory minimum levels in very severe stress scenarios."

The stress test results did not assume the banks would take measures to mitigate the shocks, such as cutting costs, repricing loans and raising additional equity.

"Once we take into account expected, and plausible, management actions, the banks remain above the top of the capital conservation buffer throughout, and rebuild back towards unquestionably strong levels by the end of the recovery periods."

[If you have a half hour and some brain cells to kill, you can read Byres’ full speech here. “The heavy lifting on lending standards has largely been done”, quoth he. Good grief. –]


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