Australia’s banking regulator has cautioned the country’s major lenders against loosening mortgage standards as interest rates fall and competition for home loans intensifies.
In a new system-wide stress test, the Australian Prudential Regulation Authority (APRA) found that banks and superannuation funds would be resilient even under a year-long financial shock driven by geopolitical tensions, inflation pressures, climate risks or cyber incidents.
But APRA warned that strong results depend on banks maintaining strict lending practices, particularly in mortgages, given the financial system’s heavy exposure to household debt — which it identified as a key vulnerability. The regulator said any easing of credit standards to chase market share could undermine stability if a severe downturn were to hit.
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APRA’s warning underscores regulatory sensitivity around mortgage credit quality as rates fall, suggesting banks may face constraints on aggressive loan growth and that prudential settings will stay tight despite improving economic conditions.
