Friday, 29 October 2021

Navigating a pandemic

At the onset of COVID-19 18 months ago, we drew attention to how APRA’s forward-looking approach to regulation had positioned the Australian financial system to function and support the economy in a crisis as deep as that caused by the pandemic.

The numerous fiscal, monetary and prudential regulation responses since that time continue to support the Australian economy, with the June quarter’s 0.7% GDP growth1 defying widespread expectations of a contraction, but with numerous headwinds remaining.

Key takeaways

  • The value of loans made at six times borrower income – a threshold deemed by APRA to be ‘risky’ – increased 92% in the 12 months to June 2021 and 193% since reporting began in March 2019. Further, APRA announced it expects lenders to assess new borrowers’ ability to meet loan payments at an interest rate at least 300 bps above the loan product rate; an increase of 50 bps over the 250 bps commonly used by ADIs.
  • ADIs continue to grow their exposures to commercial property, increasing a further 5.4% over the year to June 2021, substantially higher than the 3.5% increase in exposures recorded in the year prior.
  • Balances held in offset accounts dropped 1.3% in the June quarter, contributing to slower growth across the year to June 2021 (+13.6%) relative to March 2021 (+17.9%).
  • Whilst major Australian banks continue to dominate the lending market, the non-bank lending sector continues to increase its market share in core debt lending, with the sector set for a growth phase.