REMOVAL OF INVESTOR LENDING BENCHMARK TO BE CAUTIONED, SAYS IPA

REMOVAL OF INVESTOR LENDING BENCHMARK TO BE CAUTIONED, SAYS IPA

27 April 2018

The Australian Prudential Regulation Authority’s (APRA) plan to remove the investor lending benchmark and replace it with better practices and strengthened lending standards should be treated with some caution, according to the Institute of Public Accountants (IPA).

“The removal of the current investor lending benchmark may be good for individuals and small business but on a macro level, the onus on authorised deposit-taking institutions (ADIs) should be considered with caution,” said IPA chief executive officer, Andrew Conway.

APRA is seeking assurances from ADI Boards that ‘they will maintain a firm grip on the prudence of both policies and practices’.

“Given the findings of the Hayne Royal Commission which continue to emerge, the IPA has some reservations about the ability of certain ADI Boards to control or oversee the activities of ADIs; and the commitment of certain ADIs to strengthening some practices in line with prudent policies.

“We agree that not all ADIs should be tarred with the same brush, but we remain cautious just the same.

“The IPA continues to stress that borrowers need to be prudent as well. They need to be responsible borrowers and not just rely on responsible lending practices of banks and other ADIs.

“If a loan was not appropriate or serviceable before, then it won’t be appropriate or serviceable now, just because APRA is removing the benchmark.

“The IPA welcomes the intention of replacing the benchmark with higher, permanent standards, even though work still needs to be done by ADIs.

“The need for financial and business literacy is paramount for all small businesses when seeking to borrow and enter into any financial arrangement; this is where they should engage a public accountant to assist.

“The need for financial literacy was a feature of the commentary we received throughout our national small business roadshow last year.

“Currently we are developing the second edition of the Australian Small Business White Paper through the IPA Deakin SME Research Centre which looks at access to finance for small business, and borrowing from ADIs is just one avenue.  We also encourage risk-adjusted lending and other innovative policies,” said Mr Conway.