The Australian Securities & Investments Commission (ASIC) is looking to make lending more responsible, which could affect the lending of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ).
ASIC is Australia’s corporate, markets and financial services regulator. Its job is to maintain, facilitate and improve the performance of the financial system and entities in it, promote confident and informed participation by investors and consumers in the financial system, and enforce and give effect to the law.
ASIC’s Lending Proposals
What ASIC wants to do is reduce the bank’s dependence on using the household expenditure measure (HEM) which has been accused of underestimating many expenses and its ongoing liabilities.
We should want banks to lend based on people’s ability to repay based on their actual ability to afford the repayments, not just what a broad measure like HEM indicates.
However, as you can imagine, banks don’t like the idea of limiting their ability to lend as much as they would like to, or as much as customers would like.
Westpac argued, “Changes to the use of benchmarks and HEM have the potential to heavily impact the availability of credit to customers. In addition, the business and technology costs associated with this proposed approach would likely increase the cost of credit for customers.”
CBA, NAB and ANZ also voiced concerns about the proposed changes by ASIC.
ASIC will be holding public hearings in Melbourne and Sydney, which will be live streamed with the ASIC Commissioner Sean Hughes saying: “It’s time to hold some feet to the fire, don’t just tell us but show us.
“Their interpretation of the responsible lending guidelines is that it is making it more cumbersome to approve and originate loans, and we have to take their word on that, whether it is factually true is something we will test during the public hearings.”
Will It Happen?
Who knows? Everyone thought that the Royal Commission would be bad for the banks. it wasn’t exactly great, but you could argue that the big banks’ competitors suffered more, meaning that CBA and Co were net beneficiaries.
No-one wants house prices to crash, so I doubt the Government will want ASIC to be too strict on its lending standards, but we may see a bit of change.
That’s why I want I prefer the idea of investing in the reliable ASX shares in the free report below that could be better picks than the banks.
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