RBA Governor Philip Lowe has reportedly taken matters into his own hands to prevent a credit crunch in Australia

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  • RBA Governor Philip Lowe has reportedly met with executives from Australia’s big four banks to implore them to lend.
  • The Australian says that Lowe cautioned against an “overzealous tightening of credit supply in response to lending rules and the Hayne royal commission”.
  • Last month, Lowe warned that Australia’s “economy will suffer” should bank’s become “afraid to lend simply because of the consequences of making a loan that goes bad”.
  • Based on recent statements, the bank is becoming increasingly concerned about lending to small business as well as home buyers.

While the Reserve Bank of Australia (RBA) appears comfortable with the current correction in Sydney and Melbourne property prices, at least based upon public statements, a report out today suggest policymakers are becoming increasingly concerned about the unwillingness of Australian banks to lend.

Fresh from warning last month that Australia’s “economy will suffer” should bank’s become “afraid to lend simply because of the consequences of making a loan that goes bad”, RBA Governor Philip Lowe has reportedly taken matters into his own hands to prevent a potential credit crunch, meeting directly with each of Australia’s big four bank chiefs in recent weeks to push for them to lend.

According to The Australian citing senior sources at the big four banks, Lowe cautioned against an “overzealous tightening of credit supply in response to lending rules and the Hayne royal commission”.

“A key message conveyed was that, while prudent lending was the aspiration, the banks were in some instances turning away good loans or not taking enough risk to warrant even a small tick-up in ­arrears,” the report said.

The report says Lowe met with the bank chiefs before the release of an inaugural quarterly statement from the Australia’s Council of Financial Regulators (CFR) last week in which members noted the “importance of lenders continuing to supply credit to the economy”.

“Members discussed how an overly cautious approach by some lenders to incorporating relevant laws and standards into loan approval processes may be affecting lending decisions, the statement said.

The CFR comprises the RBA, APRA, ASIC and the Australian Treasury.

The sharp deceleration in Australian credit growth this year, particularly to housing investors and, more recently, owner-occupiers, has been cited by the RBA as an area of concern in recent policy documents and speeches.

Last month, RBA Governor Philip Lowe said he was “starting to be bit concerned” that after being too loose in prior years, credit standards may now have swung too far in the other direction.

Reinforcing that point, the minutes of the RBA’s December monetary policy meeting noted that “growth in lending to investors had remained very weak and growth in lending to owner-occupiers had continued to ease, to be 5 to 6% in annualised terms”.

It said “the slowing in housing credit growth had been almost entirely accounted for by the major banks, where the rate of growth in lending had been the slowest in many years”.

The minutes also raised concern about small business lending, noting that “lending by banks… had increased only modestly over the preceding few years and had been flat in 2018”. It added that “small businesses’ perceptions of their access to finance had deteriorated sharply over the year”.

Based on today’s report and recent RBA statements, it now appears the RBA is pushing banks to be less risk adverse rather than more cautious.

That may be due to a recent acceleration in the pace of price decline in Australia’s largest property markets with median values in Sydney and Melbourne both falling 1.6% over the past month, according to CoreLogic data.

With employment growth in Australia also slowing, the bank’s warning over lending to small business may also reflect increased concern that this could lead to labour market weakness given small business is the largest employer in the country.

The Australian has more here.

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