Banks slam crackdown on lending
James Frost, 2 July 2019, The Australian Financial Review
Copyright 2019. Fairfax Media Management Pty Limited.
The big four banks have attacked the corporate regulator’s responsible lending proposals as impractical, anti-competitive and potentially damaging to the economy in a series of defensive submissions.
The submissions, published yesterday, set the scene for more fireworks between the banks and the regulator at public hearings over the issue later this year, with ASIC commissioner Sean Hughes saying it is time for banks to feel the heat.
Banks are resisting a move from the Australian Securities and Investments Commission to force them into undertaking deeper analysis of borrower expenses instead of approving loans using a controversial benchmark.
Regulators fear Australians have become over-extended in a climate of low rates and loose credit checks, with markets pricing in another 25 basis point cut when the Reserve Bank of Australia meets in Darwin today.
Westpac’s submission is the most strident of the big four. It warns that some of the ideas being shopped around by ASIC are unworkable and potentially damaging to the economy.
The bank said some of the proposals might add costs to lenders, delay approvals, restrict credit, raise borrowing costs, impede competition and see some products such as unsecured lending disappear entirely.
“Accurately verifying basic and discretionary living expenses using transactional account data is currently not feasible and in Westpac’s experience would be of limited value,” the bank said.
“A large and detailed list of steps and greater document review requirements would result in increases to customer waiting times for approval, delays in the availability of credit and increased customer costs.”
The other banks – CBA, ANZ and NAB – backed Westpac’s concerns over the credit and expenses checks.
ASIC said yesterday it was keen to put banks on the spot over why it was such a poor solution by holding public hearings in Melbourne and Sydney to be streamed live. Mr Hughes said the regulator was unable to determine whether the banks were exaggerating, but public hearings would give the regulator a chance to grill them.
“Their interpretation of the responsible lending guidelines is that it is making it more cumbersome to approve and originate loans, and we have to take their word on that. Whether it is factually true is something we will test during the public hearings,” he said.
Bank CEOs and group executives will not be summonsed but the regulator wants executives who can answer the right questions to appear before it.
The hearings will follow a 12-month period of intense scrutiny for the banks, which have endured the Hayne royal commission, a Productivity Commission inquiry into competition in the financial system and the Australian Competition and Consumer Commission’s mortgage pricing inquiry.
Bank stocks were mixed with ANZ up 0.25 per cent, Commonwealth Bank down 0.56 per cent, National Australia Bank up 0.3 per cent and Westpac edged up 0.04 per cent.
Each of the big four banks took issue with aspects of the proposal, but Westpac foresaw the most problems, hard on the heels of the Westpac chairman Lindsay Maxsted’s apology to shareholders for being too slow to react to problems.
The regulator wants banks to move beyond its reliance on a controversial lending benchmark known as the household expenditure measure (HEM) which has been criticised for underestimating large and ongoing liabilities such as childcare.
Westpac, which is embroiled in a court battle over its use of the HEM, said the benchmark was a useful tool and a move to scrap it could be disastrous.
“Changes to the use of benchmarks and HEM have the potential to heavily impact the availability of credit to customers,” the bank said.
“In addition, the business and technology costs associated with this proposed approach would likely increase the cost of credit for customers.”
The bank also railed against being given “prescriptive and detailed guidance, especially at a credit product level” as it may restrict “service offerings and impede competition”.
NAB backed the rival bank, saying that if poorly implemented the lending guidelines could have a material impact on credit at a time when the economy was slowing.
“This may increase operational costs for credit providers and, in turn, potentially impact the cost of credit for customers as well as increase assessment time for loan approvals,” NAB said.
NAB also lent support to the idea that customer transaction data was not the holy grail for expense verification, citing the use of cash and multiple accounts. “This is not as simple as checking a customer’s declared figure against a line item in a bank statement,” the bank said.
ANZ’s take on the proposals supported the arguments of its big four peers, saying comparing and confirming hundreds of transactions over a given month would be difficult, imprecise and laborious. “We estimate that if such a review was conducted manually by a bank officer across three months’ statements for two accounts, it would take approximately two hours,” the bank said.
Commonwealth Bank’s submission pushed back against parts of the proposal but displayed some nuances with an emphasis on transparency for customers over what data was required and how it would be used.
CBA expressed concern about allowing other institutions to use its data to verify borrowing capacity, citing privacy reasons, one week after it apologised for losing the records of 20 million customers.
“CBA believes such services to be highly risky … CBA believes the risks associated with such tools are often unknown or unclear to the customer,” the bank said. Westpac said the bank “firmly believes there is value in the use of data aggregators” but noted customers had a right to be concerned about third parties using or storing data.
