Banks must not take risks to achieve growth: APRA chairman

Australian banks must resist the temptation of lowering credit standards or seeking out unfamiliar market to grow their lending books, APRA chairman John Laker has warned.

Delivering a speech to the Senate Standing Committee on Economics in Canberra this week, Laker says the challenge for banks is “coming to terms with ‘life in the slow lane’”.

“The Australian economy is expected to grow at around its trend pace over the next couple of years.

“However, if the current cautious approach of households and businesses towards taking on additional debt persists, authorised deposit-taking institutions are very likely to be denied the strong balance sheet growth that supported a sustained period of profit increases before the crisis.

“In these circumstances, boards and management may be tempted to chase unrealistic expectations for returns on equity by assuming more risk — through lowering credit standards or seeking new and unfamiliar markets where they may have little comparative advantage — or by aggressive cost-cutting that may weaken risk management capacities.

“These temptations must be resisted in favour of more measured strategic ambitions,” he says.

Laker’s comments come as the major banks highlighted rising wholesale funding costs and lower margins on mortgages.

In his speech, Laker highlighted three factors – the improvement in the US economy; a soft landing for the Chinese economy; and strong growth and the actions of the European Central Bank– that have lifted sentiment and improved conditions in global bank funding markets and allowed all the larger Australian banks to step up bond issuance.

 

 

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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