CBA boss says banks should tighten lending standards to curb growing debt

The head of Australia’s largest bank has weighed in on Australia’s runaway housing market, calling on lenders to proactively lift their serviceability floor rates to help temper rising risks.

Speaking at a House of Representatives economics committee hearing on Thursday, CBA chief executive Matt Comyn expressed concern that rising property prices would tip household debt levels into unsustainable territory.

“We think it would be important to take some modest steps sooner rather than later to take some of the heat out of the housing market,” he said.

“In many, many developed markets, it is much harder to act when the market is accelerating, versus taking interventions to try to avoid too much of an acceleration.”

In the last 12 months, residential property prices have climbed 16.8 per cent, raising concerns that Australians are overextending themselves in a bid to enter the market.

Comyn said the bank favoured lifting the serviceability floor rate, which is the buffer banks apply to their interest rates when testing an applicant’s ability to accommodate future hikes.

Banks were once required to assess borrowers on their ability to pay off a loan at 7 per cent, but this benchmark was scrapped in 2019 to better reflect the current low interest rate environment. 

Nowadays, APRA expects lenders to use their own floor rate or add a margin of at least 2.5 per cent to their existing mortgage rates - whichever is higher.

Comyn pointed to CBA’s decision to raise its serviceability benchmark from 5.1 per cent to 5.25 per back in June, which was made as regulators were seeking assurances that banks were proactively managing risks.

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At the time, the bank said that the changes were expected to affect only 1.3 per cent of new home loan applications. Comyn maintains that the approach is preferable to other means of addressing rising debt levels.

“With caps around loan to valuation ratios, one of the disadvantages of that is some of those measures impact particular cohorts of buyers more than others such as first home buyers,” he told the committee.

ANZ chief executive Shayne Elliott made similar comments at a panel last week, saying now is the time for lenders to be more conservative in their dealings with borrowers.

He said banks should not have to wait for regulators to step in to start seriously considering their risk settings, especially given credit growth is currently outpacing growth in incomes.

“My view is that there’s too much within our industry of outsourcing the problem to regulators and when they set the level, our job is to go [as close] to that line as possible and I don’t think that’s right,” he said.

“It is a time to be asking more questions. It is a time to be doing more analysis on borrower capacity. It is a time to be really understanding a borrower’s expense profile and their income outlooks.”

For more information on property and lending trends, visit our home loan statistics page.