Australia will make it easier for banks to approve mortgages and small-business loans to help the economy recover from its first recession in almost 30 years. Shares of the nation’s biggest lenders surged.
As part of a sweeping overhaul of so-called responsible lending obligations, the government will allow banks to rely on income and spending information provided by borrowers when assessing loan applications, rather than doing their own lengthy verifications, Treasurer Josh Frydenberg said.
The changes effectively end a decade of ever-increasing regulation for the banks that peaked last year when a wide-ranging inquiry into misconduct recommended a stricter observance of lending rules. Caught in the regulatory cross-hairs, the nation’s biggest lenders became cautious — stifling credit to the economy even with borrowing costs at record lows.
In the biggest change, the onus of responsibility for determining the suitability of a loan will be shifted to the borrower instead of the bank, to address the “excessive risk aversion which has built up and restricted the flow of credit,” the government said. That should reduce the need for extensive verification procedures that can often account for half the loan application process.
“This is ultimately a very, very good thing for the banks,” said Kyle Rodda, an analyst at IG Markets Ltd. “There’s a cost element to it — lower compliance costs, lower regulatory costs — but banks’ bread and butter is lending out money, and the more money you can lend out the more money you’re going to make.”
“This is a significant initiative that will reduce red tape for consumers seeking a loan and importantly speed up the process for customers to obtain approval for a loan,” Westpac CEO Peter King said.
“It will also play an important role in ensuring access to credit for businesses wanting to invest and grow.”
ANZ Bank CEO Shayne Elliott said the move “will speed up the flow of credit during these difficult economic times while still providing the necessary protections for Australians when accessing credit.”
The move is part of a broader regulation-busting package aimed at helping the economy rebound from the coronavirus-induced recession. Frydenberg announced what he called the most significant insolvency law reforms in almost three decades, and outlined plans to keep the budget in deficit until unemployment falls below 6%.