Banks are doing more lending at high loan-to-valuation ratios that are in excess of 90 per cent, a trend that alarms the Australian Prudential Regulation Authority.In an article in its journal, Insight, APRA provides a periodic caution on the significance of "the low credit growth and low interest rate environment [which] presents a twin challenge to lending standards for ADIs.""The outlook for housing portfolios will depend on how ADIs respond to these challenges," said APRA.It added that "slow credit growth increases the pressure on ADIs to compete for business on price and - of concern to APRA - by [also] relaxing lending standards.""This can be through increasing risk appetite, relaxing targets and limits, adjusting lending policies and approving more loans as exceptions to these policies."APRA said one indicator that it "monitors closely is the value of new lending at high loan-to-valuation ratios.""Since 2010, there has been an increase in new lending at LVRs above 90 per cent, particularly in the recent quarter," said APRA, though it did not provide any data on this trend.The regulator also expressed concern at the "sole reliance" on third party measures of household expenses, such as the ABS Household Expenditure Survey, to assess a borrower's ability to repay a loan.Using "these indices as a measure of a borrower's living expenses is not considered prudent practice," APRA said.It also said that "APRA expects ADIs to use a borrower's declared living expenses as a more representative measure of their actual living expenses."In a nod to the importance of coming changes to practices on credit reporting, APRA said it was "not common practice to [undertake] verification of a borrower's other declared debt commitments, unless the borrower was refinancing loans.""Moreover, there was no indication that ADIs had appropriate policies and procedures for ensuring that borrowers do not have undeclared debt obligations."APRA said another issue of concern was operational risk, with "observed weaknesses in some areas, including the design and implementation of operational risk management frameworks, governance and independent review, and business continuity management."APRA said that in 2012 it reviewed the operational risk regulatory capital levels for the major banks "and concluded that these levels needed to be increased."