Australia loosens lending laws to revive coronavirus-hit economy

Marco Green
September 25, 2020

Australia on Friday said it would simplify bank lending rules to free up credit in a bid to stimulate the economy, which slid into its first recession in almost 30 years due to the coronavirus pandemic.

ANZ Bank CEO Shayne Elliott said the move "will speed up the flow of credit during these hard economic times while still providing the necessary protections for Australians when accessing credit".

"The flow of credit will be absolutely critical to our economic recovery", Frydenberg told reporters in Canberra.

The current practice of "lender beware" will be replaced with a "borrower responsibility" principle, under which borrowers will be made more accountable for providing accurate information to inform lending decisions.

The changes will ease the regulatory burden and reduce the cost and time faced by consumers and small businesses seeking to access credit, Federal Treasurer Josh Frydenberg said. Shares of the nation's biggest lenders surged.

The rule changes are likely to have a significant effect on New Zealand's banks, with the "big four", ANZ, BNZ, ASB and Westpac, Australian-owned.

The move sent banking stocks soaring, but drew sharp criticism from consumer groups and the opposition Labor Party.

Bank executives welcomed the changes. "It will also play an important role in ensuring access to credit for businesses wanting to invest and grow".

The move is a turnaround from the findings of an inquiry into misconduct in the financial system, which called for banks to more strictly follow lending rules.

Aiding sentiment, Fitch Ratings said the A$1.3 billion (S$1.26 billion) record fine agreed by Westpac to settle a lawsuit by financial crime agency Austrac is manageable for the Australia's second-largest lender.

In effect, the government has heeded what became known as the "wagyu and shiraz" verdict when the Australian Securities and Investments Commission a year ago lost a high-profile case claiming Westpac Banking Corp. breached responsible lending laws by relying on spending benchmarks in approving mortgages.

Consumer advocates have criticised the plan, however, arguing it removes existing protections and would cause more harm to people and the economy.

The new arrangements will be created to ensure credit assessment is more attuned to the borrower's needs and the credit product.

Lenders that are now regulated by the Australian Prudential Regulation Authority will remain subject to APRA's lending standards, but will no longer be monitored by ASIC for compliance.

Other reports by Click Lancashire

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