ANZ admits it was 'overly conservative' in home loans
ANZ Bank chief executive Shayne Elliott concedes the bank may have been too cautious in its home lending decisions, after a quarterly update showed its mortgage book shrank in late 2018.
The big four lender will now look to expand more quickly in the housing investor market, which has been dragging on growth in the wider $1.6 trillion mortgage market, partly due to the tighter conditions imposed by banks.
As banks struggle for growth amid a slowdown in the mortgage market, figures published by ANZ on Tuesday showed its mortgage portfolio contracted in the last three months of 2018 by $542 million or 0.2 per cent. This was weaker than the wider banking industry in both the owner-occupier and housing investor market.
During 2018, ANZ said its loan growth was just 1 per cent, compared with industry-wide growth of 4.2 per cent. It said in the year to January ANZ's mortgage portfolio grew by just 0.4 per cent.
The bank explained the slow growth by pointing to weaker expansion across the industry, tighter credit policies within the bank, and its preference for owner-occupier and principal-and-interest loans, which tend to be paid off more quickly.
Mr Elliott said in a statement that consumer sentiment remained "generally subdued," and uncertainty about regulation and house prices was affecting confidence.
"While we are maintaining our focus on the owner occupier segment, we acknowledge we may have been overly conservative in our implementation of some policy and process changes. We are also taking steps to prudently increase volumes in the investor space,” Mr Elliott said.
The admission from ANZ that it may have put too the brakes on too aggressively comes amid growing concern from top policymakers that banks had over-reacted to the regulators' attempts to take some of the heat out of the housing market between 2014 and 2017.
In the last three years, banks including ANZ have unleashed a series of changes to their internal policies that has significantly reduced how much a customer can borrow.
A presentation from the bank on Tuesday estimated the maximum mount a customers could borrow had been cut by 20 per cent, though it also said only 11 per cent of customers borrow at their maximum capacity.
The key changes that have cut customers' "borrowing power" have been the move to assess all new loan applicants at interest rates of 7.25 per cent, and a campaign to more thoroughly check customers' living expenses - a key concern raised at the royal commission last year.
In a relief for the banking industry, the royal commission did not recommend changes to responsible lending laws.
Late last year, the nation's most powerful financial regulators publicly raised concerns banks were being "overly cautious," and since then the housing market the slowdown in the mortgage market has continued, with house prices in Sydney and Melbourne continuing to fall.
The Australian Prudential Regulation Authority has also removed previous limits it placed on how quickly banks could grow when lending to property investors, or to customers taking out interest-only mortgages.