The additional powers and funding for the Australian Prudential Regulation Authority come after soaring house prices in the nation’s largest cities stoked concern from politicians and central bankers.Treasurer Scott Morrison said the government will legislate to extend APRA’s ability to apply controls to the non bank lending sector as well as “explicitly allow them to differentiate the application of loan controls by location.” He spoke as he was handing down the federal budget.
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Bringing non bank lenders into APRA’s regulatory purview will strengthen oversight of a sector that has grown as the big four banks tighten their lending criteria.
Last year, the big four domestic banks all withdrew from lending to borrowers reliant on overseas income.
With demand from Chinese buyers buoyant, a number of smaller players jumped into the lucrative market. In recent weeks, though, bigger operators have begun to circle, with private equity giants KKR and Fortress Investment Group reported by the Australian Financial Review to be eyeing the sector.
Additionally, fresh restrictions on domestic lenders including a cap on the volume of new interest-only loans sparked concerns some riskier practices could migrate to the non-bank sector. In a letter to lenders setting out the restrictions in March, APRA said it was monitoring the growth of warehouse facilities being provided, saying it would be concerned if these were of “materially lower quality” than the bank’s own lending.
Giving APRA the ability to regulate by geography would allow it to target restrictions at Sydney and Melbourne where prices have grown most rapidly without affecting other Australian cities where market conditions are more subdued.