March 15, 2019 / 6:15 AM / 8 months ago

Australia's ANZ to give longer interest-only loans to revive property investor business

SYDNEY, March 15 (Reuters) - Australia and New Zealand Banking Group will offer interest-only loans for up to 10 years to property investors, as it tries to fuel business amid softening economic conditions.

From April 25, Australia’s third largest lender will extend the period of interest-only loans - which do not require principal repayments - to property investors by 5 years to a decade, and will increase the size of the loans to up to 90 percent of the property’s value, the bank told clients in a memo seen by Reuters.

Australia’s four largest lenders, including ANZ, National Australia Bank, and their largest peers, Commonwealth Bank of Australia and Westpac Banking Corp, control about 80 percent of the country’s mortgage market, their largest contribution to profit.

They are still amongst the worlds’ most profitable, but as lending growth hits record lows amid the softening of its once-booming property maket, the banks are beginning to mobilise to try to retain profitability.

“On recent review, we have made a decision to increase our focus on the investor market,” according to the ANZ memo. “The upcoming changes demonstrate our continued appetite in the investor market, whilst ensuring we remain in line with our APRA requirements.”

A spokesman for the Australian Prudential Regulation Authority (APRA) declined to comment.

The regulator last year lifted strict caps on investor and interest-only lending that had been put in place to avoid a property bubble, contributing to a 8 percent decline in home values across the country since September 2017.

At the time, it said it would monitor changes in lending standards by the banks and that the re-emergence of rapid growth in interest-only lending “at an industry-wide level” would raise systemic concerns.

“In such a scenario, APRA would consider the need to apply industry-wide measures in response,” the regulator said.

Credit growth in Australia fell to a record low of 4.2 percent in the 12 months to December, as lending tightening by banks and a sharp fall in housing prices turned off demand.

Home lending to investors by ANZ shrunk 3.8 percent - or A$3.2 billion ($2.27 billion) - over the period, while overall growth in the system was 1 percent. ($1 = 1.4122 Australian dollars) (Reporting by Paulina Duran; Editing by Rashmi Aich)

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