Property developer loans 'poor' in APRA eyes
The quality, or lack of it, of the banking sector's loans to property developers is a further theme agitating Australia's prudential regulator, with "guidance" for banks promised later this year.A late 2016 review of commercial property lending "found clear evidence of an erosion of standards due to competitive pressures," Wayne Byres, chair of the Australian Prudential Regulation Authority, told a property conference in Sydney on Friday.Byres cited an example "of lenders justifying a particular underwriting decision not on their own risk appetite and policies, but based on what they understood to be the criteria being applied by a competitor."The APRA review reached beyond the perennial scrutiny of the major banks to encompass foreign bank branches. This latter cohort, Byres said, "have been picking up market share and growing their commercial real estate lending well above system growth rates."We were also keen to see genuine scrutiny and challenge that aspirations of growth in commercial property lending were achievable, given the position in the credit cycle, without compromising the quality of lending."Byres shared insights that layers perspective on APRA's late March initiative to curtail lending growth to retail investors, much of it "interest only" loans.Lending by banks to property developers by banks, Byres said, was "often being hampered by inadequate data, poor monitoring and incomplete portfolio controls."As an antidote, he acknowledged, "the review found that major lenders were well aware of the need to monitor commercial property lending closely, and the need to stay attuned to current and prospective market conditions."Banks, he said, "have been tasked to improve their capabilities … our work plan certainly has further investigation of commercial property lending standards in 2017, and we will keep the need for additional guidance material under consideration."