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A new quarterly statement from the Council of Financial Regulators (which includes ASIC, APRA, the Reserve Bank of Australia [RBA] and Treasury) has shown that lender responses to a rising cash rate are being closely monitored.
The council met earlier this week with the ACCC, AUSTRAC, the Australian Taxation Office (ATO), and the Australian Financial Complaints Authority (AFCA) to discuss the impacts of an ascending cash rate to the housing market, as higher rates hit mortgage repayments and consumers’ borrowing power.
“Housing market indicators suggest that activity has weakened in the major cities in recent months and housing price growth nationally has slowed, although housing lending is only just starting to ease,” the statement said.
“The council will be closely monitoring the effects of rising interest rates on the household sector.”
However, as the RBA has previously indicated, any worries the regulators might have had around consumers’ ability to cop higher rates have been eased by the continued highs in savings levels.
“Members emphasised the additional resilience provided by the substantial housing equity and payment buffers built up by households since the onset of the pandemic,” the statement said.
On Tuesday (21 June), RBA governor Philip Lowe reported that so far, the 25 and 50-bp hikes over May and June have not affected most people’s mortgage payments to a great extent, as many borrowers have built up large cash buffers.
Households currently hold around $200 billion in extra savings in offset and deposit accounts, with the median borrower having a buffer of one year’s worth of mortgage repayments. Some have managed to build up buffers as long as two years’ worth.
However, APRA has recently told banks that they will need to include buy now, pay later and higher education debts when reporting debt-to-income ratios from September.
The regulator’s chair Wayne Byres told lenders it would be important to actively manage risk within their loan portfolios, in the current rising rate environment.
The council of regulators also discussed how banks have passed on RBA cash rate increases to their customers.
“Participants noted that, given the cash rate remains at a low level, there has been much less pass-through to deposit interest rates than to lending interest rates so far,” the statement said.
“It has agreed to continue to monitor pass-through closely.”
Debanking and crypto assets were the main issues at the meeting of regulators however.
As requested by the former government, agencies in the council have been preparing advice on the causes of withdrawal or refusal of banking services for certain sectors.
A working group has been examining the issue of debanking, consulting with industry and considering possible policy options.
At the council meeting, regulators spoke about how they might deal with banks’ risk aversion for certain sectors and ways to improve transparency around banking decision processes.
They are expected to deliver advice to the government in August.
AFCA had also been brought into the circle to present its activities and trends in financial complaints.
The complaints authority reported higher investment in internal dispute resolution, particularly among some of the large financial institutions.
There had also been a spike in complaints around crypto-asset scams and other investment scams.
On Thursday (23 June), the RBA confirmed that it had promoted head of economic analysis Bradley Jones to assistant governor (financial system), overseeing payments system and regulation.
Mr Jones had replaced Michele Bullock in the role, after she became the first female deputy governor in the RBA’s 62-year history.
[Related: RBA appoints assistant governor]
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