David Coleman (Banks, Liberal Party) Share this | Hansard source

On behalf of the Standing Committee on Economics, I present the committee's report entitled Review of the Australian Prudential Regulation Authority Annual Report 2016 together with the minutes of proceedings.

Report made a parliamentary paper in accordance with standing order 39(e).

by leave—On 13 September of this year the Australian Prudential Regulation Authority appeared before the committee as part of the review of its performance and the strengths of Australia's financial and banking regulator. APRA explained its regulatory agenda, and in particular its activities to improve the resilience of banking institutions and to improve executive accountability through the government's proposed Banking Executive Accountability Regime. The committee scrutinised APRA on measures to reinforce sound lending practices to ensure that Australian banks remain prudentially strong and APRA's recent decision to establish a prudential inquiry into the Commonwealth Bank of Australia.

On 31 March this year, APRA provided the banks with guidance to limit the flow of new interest-only lending to 30 per cent of new residential mortgage lending. The letter updated APRA's guidance from December 2014, which instructed banks to limit the growth of investor loans to 10 per cent. The purpose of APRA's guidance was to maintain a strong lending environment during a time of increased risk. In response, the major banks raised interest rates on both their new and existing interest-only loans, even though APRA's guidance was related to new loans and not existing loans. Further, the banks stated publicly that the interest rate increases were a result of APRA's new guidance. For example, on 27 June of this year, the Commonwealth Bank stated:

To meet our regulatory requirements, variable interest only home loan rates for owner-occupiers and investors will increase by 30 basis points.

Similar statements were made by Westpac and National Australia Bank. APRA was scrutinised on the extent to which it held the banks to account for the way they implemented the 30 per cent limit on new residential mortgage lending.

The ACCC's new roles and powers to investigate interest rate decisions, which flowed from a recommendation of this committee, will have a positive impact on competition in the banking sector and in making bank decisions more transparent to Australian consumers. Using these powers, the ACCC will be able to determine whether or not, in its view, any of the banks have made misleading statements in relation to recent interest rate decisions. The committee looks forward to the outcome of the ACCC's investigation on this matter and notes that it will be important for the ACCC to conduct granular analysis of the internal documents of the banks to determine whether or not those internal documents reflect the same outcomes as the banks stated publicly.

The government has responded to the recommendations of the committee's review of the four major banks, in particular the establishment of the BEAR. The BEAR will set out clear accountabilities and expected standards of behaviour for banking executives, will make it easier for APRA to disqualify executives and will impose financial penalties on authorised deposit-taking institutions that do not meet expectations.

The committee notes that significant changes are proposed to improve the governance and transparency in the superannuation industry and that APRA is supportive of these changes. The committee expects that, once the measures are implemented, APRA's supervision of superannuation funds will be greatly enhanced. The committee will closely monitor APRA's performance in this area in the future.

On behalf of the committee, I would like to thank the Chairman of APRA, Mr Wayne Byres, and his colleagues for appearing at the public hearing. I commend the report to the House.

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