RBA Closely Monitoring Property Lending

Australia’s regulators are keeping a close eye on bank lending for investment properties as risks are building in the sector, a top central bank official said on Thursday.  The Reserve Bank of Australia’s (RBA) head of financial stability, Luci Ellis, said risks were mainly growing in Sydney and Melbourne, with almost half of all new financing for investors rather than owner-occupiers.

“Obviously that can’t continue forever,” Ellis told a conference on dysfunction in capital markets.  “We obviously need to keep a close eye on market developments, including lending standards,” she added. “Banks and other lenders need to consider the risks they are taking on, not just from individual loans, but from the collective effects of lending decisions on the system as a whole.”

The Australian Prudential Regulation Authority, which oversees the banks, is consulting with the RBA on whether it should adopt macroprudential rules aimed to limit the build up of leverage and risk-taking in the banking system as a whole, rather than just at individual banks.  “In doing so, it will balance the advantages and disadvantages in the context of financial system stability, safety, and efficiency, and it will consider how those measures can best be targeted,” said Ellis.

Reuters

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