Credit issues heat up under competitive pressures: with APRA issuing warnings to banks about their credit standards and the Reserve Bank recently putting low doc loans on its watch list, a number of credit issues are being more closely scrutinised within financial markets.(CREDIT RISK)

Publication: Journal of Banking and Financial Services

Publication Date: 01-APR-05

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COPYRIGHT 2005 Australian Institute of Banking and Finance

Two key credit issues currently subject to growing debate within the industry are the banks' efforts to maintain their retail and business lending in the face of increasing competitive market pressures and their use and extension of credit information from both internal resources and external providers, which also raises privacy concerns.

High levels of debt

With the record, high levels of household debt (both mortgage and personal) that have been created over the past five years, and with property prices under pressure, it is imperative that the credit criteria and information used to make those decisions are not compromised in the face of competitive pressures and changing economic conditions.

While banks recognise and understand APRA's concerns, they have also raised some practical considerations about credit issues relating to their lending policies in the current environment.

Nelson Yiannakou, Head of Personal Credit Australia, National Australia Bank (NAB), supports APRA's concerns but says: 'It is a matter of finding a balance between the demands of our investors and the bank's growth targets with the realities of the market's appetite for ongoing mortgage lending. This may mean that NAB sees it as opportune not only to consider relaxing some areas of lending criteria but also tightening criteria in other areas. For instance, the bank is progressively reviewing higher risk segments of the mortgage portfolio'.

David Grafton, Executive General Manager Credit Risk (Retail) for the Commonwealth Bank of Australia (CBA) understands why this has become a high visibility issue and the broad context of APRA's views. He says: 'If you look at the statistics relating to levels of consumer indebtedness and how that has tracked over time, then the picture does show that Australian consumers are far more indebted in absolute terms than they have been in the past and this is a growing trend. Compounding this is a sense that we might be at a point of inflection in the credit cycle and if...

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