The Australian lending regulator’s removal of the 10 per cent benchmark on investor lending growth reinforces a paramount need for improved financial and business literacy, argues an accounting body.
Better financial literacy needed amid APRA changes
APRA introduced the 10 per cent benchmark on investor loan growth in 2014 as a temporary measure to reduce higher-risk lending and improve practices.
Chairman Wayne Byres said the temporary benchmark “has served its purpose”, however the environment “remains one of heightened risk”.
“There are still some practices that need to be further strengthened. APRA is therefore seeking assurances from ADI boards that they will maintain a firm grip on the prudence of both policies and practices,” Mr Byres said.
According to APRA, ADI (approved deposit-taking institution) boards will be expected to confirm that lending has been below the investor loan growth benchmark for at least the past six months.
In addition, they must assure APRA that lending policies meet their guidance on serviceability and will be strengthened where necessary.
The Institute of Public Accountants executive general manager Vicki Stylianou told Accountants Daily about the role accountants need to play in making sure small businesses have the requisite financial and business literacy when seeking to borrow in all financial engagements.
“We’ve received a huge amount of feedback on the need for financial literacy,” Ms Stylianou said.
“Borrowing from ADIs is only one avenue [of financing]. We also encourage risk-adjusted lending and other innovative policies.”
Ms Stylianou said that while APRA’s removal of the limit on investor lending growth may be good for individuals and small businesses, the IPA was cautious about the ability of certain ADI boards to oversee and control the activities of ADIs.
She also questioned the commitment of certain ADIs to strengthen some of their practices in line with prudent policies.
On the other hand, Ms Stylianou added that not all ADIs “can be painted with the same brush”, stressing that borrowers need to be prudent as well, and ensure they are being responsible borrowers and not just relying 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,” she said.
“[APRA’s] intention is to replace it with higher permanent standards, even though work still needs to be done by ADIs, which IPA welcomes.”