ASX 200 banks are down on the same day it was confirmed APRA is planning home loan action.
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It has been confirmed that APRA is going to take action on home loans. This has happened on the same day that S&P/ASX 200 Index (ASX: XJO) banks are falling.
What is APRA?
For context on what has happened, the Australian Prudential Regulation Authority (APRA) is a regulator that supervises institutions across banking, insurance and other financial segments of Australia.
It is part of the Council of Financial Regulators, a co-ordinating body of Australia’s main financial regulatory agencies. There are four members, APRA, the Australian Securities and Investments Commission (ASIC), the Australian Treasury and the Reserve Bank of Australia (RBA).
The Council’s objectives are to promote stability of the Australian financial system and support effective and efficient regulation by Australia’s financial regulatory agencies.
This morning, the Council gave its quarterly statement for September 2021 after a meeting.
It discussed a number of items including the pandemic, the recovery and “housing market risks”. The Australian Treasurer, Josh Frydenberg, attended for parts of the meeting.
What will APRA do?
During the meeting, the Council talked about housing credit conditions and associated risks. It noted that housing credit grew in the first half of the year, from both owner-occupiers and investors. Lockdowns have reduced transactions and new listings, but prices continue to rise “briskly”.
The Council said it was mindful that a period of credit growth materially outpacing growth in household income would add to the medium-term risks facing the economy. However, it noted that lending standards remain sound.
Possible policy responses were discussed. APRA will continue to consult on implementing any particular measure. Over the next couple of months, APRA plans to publish an information paper on its framework for implementing any policies.
This could be important for many ASX 200 banks because they write billions of dollars of home loans each year and have large loan books exposed to the residential home loan market.
Yesterday, it was reported by the Australian Financial Review that regulators were looking at the increasing debt to income ratios, with the Treasurer’s blessing. In the three months to 30 June 2021, more than a fifth of new mortgage loans were to borrowers that were taking on debt of at least 6x their income.
How is this impacting ASX 200 bank share prices?
Looking at the current states of play, the share prices of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group Ltd (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) are down.
The smaller banks are also in the red. The Bank of Queensland Limited (ASX: BOQ) share price is down 1%, the Suncorp Group Ltd (ASX: SUN) share price is down 0.4% and the Bendigo and Adelaide Bank Ltd (ASX: BEN) share price is down 1%.
However, the ASX 200 banks are recovering from an early morning drop where the ASX 200 as a whole fell more than 1%, which could be the main reason for the decline in the banking sector.
Some of the big banks themselves have called for action to happen about loans before the housing market and loans go too far.
The CBA CEO Matt Comyn made some comments to the House of Representatives Standing Committee on Economics, saying that he is concerned by the housing market:
As the RBA has observed, activity in the housing market remains very strong, even after extended lockdowns in the two largest markets. We continue to monitor these developments closely, and have made adjustments to our lending settings. We are also thinking carefully about the impact of these dynamics on particular cohorts of home loan borrowers, including first home buyers.
The ASX 200 bank recently increased its serviceability buffer rate on assessing what rate borrowers would be able to meet repayments.
It is much harder to act when the market is accelerating versus taking interventions to try to avoid too much of an acceleration. I want to be clear I’m not concerned about the point that we are at today but based on the acceleration I think it would be prudent to act sooner rather than later.
The post Confirmed: APRA is planning action on home loans, ASX 200 banks drop appeared first on The Motley Fool Australia.
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