Shadow banks sound credit alarm over new APRA powers

Shadow banks sound credit alarm over new APRA powers
Shadow banks sound credit alarm over new APRA powers

Shadow banks are up in arms over extensive new powers being given to the Australian Prudential Regulation Authority that they say could restrict loans to home buyers who don’t otherwise qualify on the stricter criteria applied by banks.

An exposure draft released last week said APRA will be able to use the same "macroprudential" powers it has applied to "authorised deposit-taking institutions" (ADIs) – such as investor and interest-only lending caps – on non-banks, The Australian Financial Review reported.

Big non-bank lenders such as ASX-listed Pepper Group, Resimac, Firstmac, Latitude and Liberty Financial are preparing submissions to Treasury to highlight the risks of APRA’s new powers, which they say may curb their lending, increase funding costs and could compound any housing market downturn.

Back in April, top executives of Firstmac, Australia’s biggest non-bank lender, had said that the "invisible hand of APRA" was trying to rein in non-banks’ lending to property investors. Shadow banks are not regulated by the APRA, but by the Australian Securities and Investments Commission.

This followed APRA’s advice to authorised deposit-taking institutions (ADIs) that it was “monitoring the growth in warehouse facilities provided by ADIs to other lenders”. 

Investors in the non-banks' mortgage securitisations are also worried by the broad scope and uncertainty around the new laws, which could result in investors demanding higher returns and forcing up borrowing costs.

"It is a bolt from the blue, it is extraordinary, it is just so broad," a source in a leading non-bank lender was cited as saying the AFR.

The development comes even though shadow banks fund lending from capital markets and don't take deposits. 

Shadow banking is a colloquial term referring to lenders not regulated by APRA, though they are regulated by the Australian Securities and Investments Commission so have to lend responsibly.

Non-bank lenders have been on the regulatory radar ever since they started reporting higher loan volumes ever since banks were reined in with lending caps for investor mortgages. 

APRA Loans And Mortgages

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