The Australian regulator sets a framework to curb the risk of real estate credit

A street in downtown Sydney, Australia, November 9, 2021. REUTERS / Loren Elliott

By Paulina Duran

SYDNEY, Nov 11 (Reuters) – Australia’s stability watchdog released a long-awaited regulatory framework on Thursday to curb risky lending to real estate by banks to safeguard the country’s financial system. at a time when the real estate market is red hot.

The Australian Prudential Regulation Authority (APRA) also proposed regulatory changes that would formalize the requirement that banks promptly monitor lending to higher risk residential and commercial real estate.

The changes would add to current credit risk standards loan limits and industry-wide standards to strengthen the applicability of the measures, APRA said.

“APRA has initiated a consultation on an update to the APS 220 credit risk management standard, which would require banks to ensure that they can enforce the limits on higher risk commercial and mortgage loans in a timely and effective manner.” the regulator said in a statement.

Australia’s central bank warned last month that the “exuberance” of the housing market was fueling a build-up of debt that could destabilize the financial system, and urged banks to maintain lending discipline in the face of the boom.

On Thursday, APRA said that, if necessary, the same limits could be introduced for non-bank lenders, who are currently not subject to the same level of regulatory scrutiny.

The proposed rules would apply to these “if APRA determines that (non-bank) lenders are materially contributing to the risks of instability in the Australian financial system,” he said.

Paul Bloxham, HSBC’s chief economist for Australia and New Zealand, said the framework is part of a trend to manage financial cycles “not only through monetary policy, but also through prudential adjustments.”

In the document, the regulator said that its set of macroprudential measures – which also include capital buffers and restrictions on distributions – is in line with its international counterparts, except for measures such as limits on debt payments to income.

In October, APRA tightened restrictions on home loans with a higher benchmark for assessing the repayment capacity of home buyers, in a move that reduces the maximum borrowing capacity of borrowers by about 5%.

(Reporting by Paulina Duran in Sydney and Riya Sharma in Bangaluru; editing by Rashmi Aich and Simon Cameron-Moore; translation by Darío Fernández)

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