Banks may make it harder for consumers to get car loans, credit cards and personal loans under proposed rules from the corporate regulator.
After the royal commission put bank lending practices under the microscope, adding to pressure from regulators, the Australian Securities and Investments Commission last week issued a consultation paper on responsible lending, which reiterated some of its concerns about how customers’ living expenses were assessed by banks.
In response to the paper, which will be followed by consultation with banks over the coming months, some banking analysts predicted certain types of consumer credit could be tightened.
At the same time, however, they said there could be benefits for the big banks, because the new rules are expected to force smaller non-bank lenders to tighten their processes, similar to what banks have already done over recent years.
Macquarie analysts said the regulator's move to update responsible lending rules could have a bigger impact outside the home loan market, given that banks have already tightened up their mortgage lending criteria significantly in recent years.
"While we believe mortgage credit underwriting standards have improved in recent years, we see further underwriting process tightening in other lending categories (for example, personal loans and credit cards)," they wrote.
The broker – which is forecasting a slowdown in credit growth – said regulators would recognise arguments made by lenders that smaller-value loans, such as credit cards, should not be assessed in as much detail as home loans. Even so, they added "we expect non-mortgage credit availability to reduce".
"This should not result in significant implications for the majors, but will likely impact smaller credit providers significantly,' the analysts said.
Morgan Stanley analyst Richard Wiles wrote to clients that "at first glance, compliance with existing laws will require even more scrutiny of borrowers’ household cash flows".
He also said the ASIC proposals supported his view that banks were unlikely to relax their lending standards.
For the major banks, there could also be some benefits from ASIC's plan to provide updated guidance on responsible lending, as there is an expectation it will lead to greater consistency in how customers are assessed between banks. This might force less regulated lenders to tighten their processes.
Macquarie noted that more lightly-regulated non-banks have been growing at 10.5 per cent a year in the mortgage market, compared with 3.5 per cent among those regulated by the Australian Prudential Regulation Authority.
The update to responsible lending guidance also comes as banks are preparing for major changes in how they assess consumers due to a change known as comprehensive credit reporting (CCR), which will give lenders far more information about a customers' other debts and their financial history.
Banks have previously only provided "negative" data for cutomers' credit reports, such as whether the borrower has defaulted. The new regime will require banks to also provide "positive" credit information, such as how frequently they have paid their bills on time.
Major banks must hand over all of their CCR data by the middle of this year, which is expected to lead to more "risk-based pricing" – where the least risky borrowers pay lower interest rates.
Clancy Yeates is a business reporter.