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Australia's banking watchdog flags end of investor credit cap

[SYDNEY] Australia's banking regulator is considering removing a previously set cap on investor credit that was designed to stop a debt-fuelled bubble in the country's housing market.

Australian Prudential Regulation Authority (APRA) Chairman Wayne Byres told a parliamentary committee on Thursday the 10 per cent annual growth cap it set last year was "probably reaching the end of its useful life".

The tighter regulations, which also include a 30 per cent limit to new interest-only loans, have helped cool prices in recent months, Mr Byres said.

"We think the quality of lending the banking system is doing today is certainly higher and better than it was a few years ago," Mr Byres said.

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"The general dynamics in the market suggest it (the cap) is potentially becoming redundant, although there are some institutions still growing quite quickly."

Removing the cap would allow the banks to increase the number of investor loans they write, stimulating credit.

But looming new capital rules will allocate more risk and capital to investor loans, potentially more than offseting the impact of any rollback of the cap.

Australia's big banks - Commonwealth Bank, National Australia Bank Ltd, Australia and New Zealand Banking Group and Westpac Banking Corp - reported a combined net profit of A$31.5 billion (S$32.5 billion) in the 2017 fiscal year, up 6.4 per cent on a year ago, according to KPMG.

Investor loan growth was now well below 5 per cent, half the growth rate in 2014, the regulator said. New interest only loans had fallen by a third to about 20 per cent.