This is unlikely I think. APRA has been working on this since mid last year, and some changes started occurring in November and December of last year, with some banks. This is not a short term thing. T
I agree mate.
Putting my regulator hat back on, regulators actually modelled out a gameplan for what we could do to be implemented post Q1 2015 if the data indicated that lending conditions were indicating a deterioration in financial system stability (lending growth metrics, etc etc).
APRA handle the financial system regulation nitty gritty - but this is part of a broader macroeconomic strategy to promote the economy while keeping a lid on building risks. I wouldn't be surprised if we saw another rate cut or so to follow this (of course that depends on the traction of this years cuts) - as lending growth 'brakes' that will provide the RBA the breathing room it needs to deliver rate cuts that have been necessary for the broader economy.
It explains the background behind lots of my posts over the last 6 months and back in early January:
http://somersoft.com/forums/showthread.php?t=105167 - where i communicated much of what is happening will happen if the data indicated that it should and advised investors to start making plans for this time.
APRA's gameplan for the next 12-24 months as at mid 2014:
1. Collect data and build systems to interpret that data (mid 2014).
2. Interpret data from Q3-Q4 2015 and warn banks to get their house in order by Q1 2015.
At this point they released this letter:
http://somersoft.com/forums/showpost.php?p=1249620&postcount=1
3. Examine Q1 data. Start making banks adjust their behaviour. Use incentivisation, market based tools, where possible. This will reduce the spillovers from other approaches.
We saw this begin a few months ago with Macquarie, with an investor heavy loan book, adjust their pricing.
http://somersoft.com/forums/showpost.php?p=1271348&postcount=1
4. Should growth continue past stated metrics (as it has), getting INDIVIDUAL banks to start adjusting their books to reduce risks. This is different to 'macro prudential tools' and are very much in line with APRA's micro prudential approach.
Regarding the use of 'actual repayment' - this is just prudent. Having an assessment buffer is one of our key pillars of risk/prudent lending. Applying it to debt with only one bank makes absolutely no sense when looking at the intent to that regulation (to have macroeconomic buffers in place to counter against potential interest rate rises).
Whats next:
Well i strongly suspect no further action will be necessary. Investment lending will cool substantially as a result of these changes and the data will trend back down.
IF it doesn't, then the next 'dial up' (what APRA's chief called it during consultations) - may be direct macro-prudential intervention. This will be risk based - so you may see direct controls on DSR ratios rather than the often talked about LTV ratio caps that have been applied across the Tasman and in many Asian economies.
I'm not so sure LTV ratios will come into it (BW are an anomaly that hold too much high LVR debt as a result of policy niches). Australian regulators like to target specific risks and high LVRs wasn't one of them. Although this was in early 2014 - so perhaps this has changed over the course of the last 14 months with strong asset price growth.
How long will this last?
I agree that part of this is temporary, but some of it may indeed be structural developments to the financial system. I'm not so sure about the assessment buffers on OFI debt. It is prudent to keep it as is and operate within a lower interest rate environment. But this will also be data dependent.
As a guide, credit growth in Aus at a sustainable pace is around the 7% mark. We are well past that, and in a low rate environment, i suspect it will take time for it to fall back there. We'll see high risk investors begin to de-leverage (either by debt deflation or actual deleveraging) and lower risk homeowners leverage up (cheaper rates). Exactly what the regulators are trying to do.
Cheers,
Redom