Prudential curbs on lending are working – RBA report

Prudential measures imposed to cool the housing market have succeeded in strengthening lending standards, the Reserve Bank of Australia says.

“Concerns about riskier types of new housing borrowing have eased,” the central bank says in its latest financial stability report. “The regulatory limits on investor loans and interest-only lending have reduced the build-up of macro-financial concerns.”

The RBA notes the transition from interest-only to interest-and-principal mortgages has increased arrears in some cases. “Overall, however, the regulatory measures and broader strengthening of lending standards have contributed to an improvement in the risk profile of new housing lending,” it says.

Commercial property, meanwhile, remains “an area to watch”. Non-residential property prices have been climbing in major centres such as Sydney and Melbourne, but other areas suffer from high vacancy rates. Banks slowed the growth of their commercial property exposures after action by the Australian Prudential Regulation Authority, the report says.

The resilience of banks overall has “continued to improve”, though a major investigation is ongoing into possible misconduct by certain firms.