Genworth backs APRA lending guidance

In an ASX statement yesterday detailing the group’s third-quarter results, Genworth commented on the key regulatory developments in the mortgage market including the Financial System Inquiry (FSI), the Reserve Bank’s Financial Stability Report (FSR) and the Wednesday release of the APRA guide for residential lending.

“Genworth supports the recent supervisory actions of the regulator, including the sound lending practices set out in the final Prudential Practice Guide for housing lending (APG223) as the most practical and tangible approach to maintaining the stability of the mortgage market,” Genworth said in an ASX statement yesterday.

Released Wednesday, the APRA lending guidelines includes direction on addressing housing credit risk within an ADI’s risk management framework, applying sound loan origination criteria and appropriate security valuation methods, managing hardship loans and establishing a robust stress-testing framework.

APRA observed that, if not closely monitored, bank reliance on broker distribution can potentially lead to additional risk.

Also in yesterday’s announcement, Genworth noted the comments of the RBA in its recent FSR that the low interest rate environment and, more recently, strong price competition among lenders has translated into the composition of housing and mortgage market becoming unbalanced.

Genworth also noted that the RBA in conjunction with APRA and other members of the Council of Financial Regulators are considering additional steps that might be taken to reinforce sound lending practices, particularly for lending to investors.

In response, the group agreed with the RBA that there is currently little evidence of lending standards deteriorating.

Genworth reported an underlying net profit after tax of $70.2 million for the three months to 30 September, a 20 per cent increase from the same period last year.

“During the third quarter of 2014, a number of contractual discussions with some lender customers were concluded, including discussions regarding the inwards reinsurance business that GMA writes,” according to an ASX statement.

“As a consequence of these discussions GMA has extended one existing contract for a further two years and has amended one contract of another lender customer such that they will no longer maintain a risk retention program for new mortgage originations,” it said.

Genworth expects to post a full year underlying net profit after tax of between $250 million and $270 million.