Banking regulator APRA Is “dialling up” the scrutiny on banks’ commercial real estate lending after double-digit loan growth.
Charles Littrell, APRA’s executive general manager for supervisory support said the regulator was turning up the pressure amid fears of an apartment oversupply.
According to a report in The Australian, with estimates of a national oversupply of 70,000 apartments, Littrell said it was “not a bad time to be seeing banks strengthen the equity position in their balance sheet”.
Speaking at a Centre for International Finance and Regulation event yesterday, Littrell said commercial property had historically been what “goes wrong” for the banking system. Plus, there is now the added risk of becoming “so systemically concentrated”.
“In 1990 the four major banks had 40% of the banking market; now they’ve got 80%,” he told the event, The Australian has reported.
“They’re all in the same business model, they’re all hugely exposed to each other ... and we don’t quite know what would happen if that business model gets whacked by external stress all at once.
“So there is a lot of conventional work at our end – focusing on sound lending and in fact now we’re dialling up our systemic supervisory focus on commercial real estate.”
Luci Ellis, the Reserve Bank head of financial stability, echoed APRA’s concerns. She told the event that commercial property and development was one area that lacked research since the global financial crisis to draw on.
“The thing that has tended to be the causal agent in a banking crisis, even though you saw something go wrong in housing prices, it was the property developers, it was the commercial real estate, these are the vectors of distress,” she said, according to The Australian.
According to Credit Suisse, total bank commercial real estate lending has boomed in the past three years, with exposures growing 10% to $214bn for the year to March, the highest rate of growth since the GFC.
