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BFCSA: Australian Banks say ASIC responsible lending crimps credit

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ASIC responsible lending crimps credit: ANZ and NAB

John Kehoe

 27 March 2019


 ANZ Banking Group and National Australia Bank are at loggerheads with corporate cop James Shipton, who has slammed bankers for spreading a "myth" that the regulator's responsible lending crackdown is exacerbating a credit squeeze.


 ANZ chief executive Shayne Elliot said bankers reacting cautiously to the Australian Securities and Investments Commission's more stringent application of lending standards meant some home buyers and businesses "will find it harder to borrow".  He also rebuffed ASIC chief prosecutor Dan Crennan's ambitions to lock bankers in jail, in response to questions from Liberal MP Tim Wilson about unintended consequences from a royal commission-inspired clampdown.   "People should pay the consequence of poor behaviour or misconduct or breaking the law," Mr Elliott said at a parliamentary hearing in Canberra.


  "I would have thought the right outcome here is not how many people are in jail but do we have a fully functioning financial system that is responsible and generating good outcomes for our customers."   

NAB interim chief executive Philip Chronican told the House of Representative economics committee that ASIC's stricter enforcement of household expenditure verification for borrowers was "slowing the process down with some of our frontline bankers in recent weeks".  "We believe that in aggregate most borrowers who previously would have qualified for a home loan will continue to qualify.  "However, the documentary requirements that are now being  asked of our frontline bankers are such that [it] is slowing the process down, and as a result we are lending less in home lending than we might otherwise be able to."


 Speaking separately at The Australian Financial Review Banking & Wealth Summit in Sydney on Wednesday, ASIC chair Mr Shipton hit back at bankers claiming responsible lending laws were to blame for tighter credit.  "They've been in force for a decade and they are nothing new," he said. "It's extraordinary that I am up here today saying something as simple as 'obey the law'."


He said ASIC was working to update and clarify the responsible lending guidelines.  "I really do want to debunk any myth that these regulations are causing economic concern, they are not."  "I do think banks' risk appetite has had a significant impact."  

— ANZ chief Shayne Elliott Annual credit growth slowed to near a five-year low of 4.3 per cent in January, dragged down by a sharp fall in investor loans for housing. The national responsible lending laws came into effect under Labor financial services minister Chris Bowen in 2009, through the National Consumer Credit Protection Act, when the federal government took over state-based oversight of credit.  ANZ's Mr Elliott said there was "vagueness" and "greyness" in responsible lending laws that require lenders to take reasonable steps to ensure a loan was not unsuitable for a borrower.


Amid a debate about whether the ongoing credit squeeze for home buyers and small business was driven by banks being more conservative or borrowers demanding less, Mr Elliott said the interpretation of responsible lending laws had caused a "fundamental change in our processes and that's led to a tightening of credit availability".  It's a little bit chicken-and-egg. If people find it harder to get credit, they might step back from wanting to invest in their business or buy a home," Mr Elliott said. "I do think banks' risk appetite has had a significant impact."  

NAB's Mr Chronican said the credit slowdown was largely due to softer demand caused by fewer investors and housing affordability challenges. NAB's loan approval rates were in line with last year, but the number of loan applications had declined, NAB chief financial officer Gary Lennon said. 

The Reserve Bank of Australia has expressed concern about a possible credit squeeze, but has attributed the bulk of the slowdown in credit growth to investors demanding less rather than banks withdrawing from the market.  Mr Elliott admitted ANZ had been too cautious in cutting back on loans in the royal commission environment and was now seeking to lend more to home buyers and business.  "Our challenge is finding the right balance of prudence and availability within the regulatory framework," he said.  "If we are to serve society, we must support the economy by lending responsibly, and that is what we’re aiming to do."


Westpac business bank boss David Lindberg told the Summit on Tuesday the availability of credit was being squeezed by the emergence of micro-regulation which is weighing on the size of loans small businesses can afford while making bankers fearful of making a mistake.  Earlier this month a senior banker told The Australian Financial Review that ASIC's policing of lending laws was exacerbating the credit tightening and Mr Crennan "running around talking about criminal charges and putting bankers in jail" did "not encourage loan writers to issue credit".  

Mr Shipton slammed the anonymous remarks and said bankers were resisting change.

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