Experts warn of fallout, lending crunch

Aussie rich-lister Christian Beck made headlines after sensationally claiming he couldn’t get a bank loan despite his $775 million fortune last year.

In an August interview with The Australian Financial Review, the tech entrepreneur and founder of Australian Technology Innovators — a company with a $231 million revenue in 2017 — said he was denied a loan by “paranoid” banks cracking down on lending thanks to the Financial Services Royal Commission.

“It’s stupid, it’s crazy, I can definitely afford it,” Mr Beck told the publication at the time.

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“If you go to borrow money in Australia, it’s very, very difficult and part of it is all the Australian Prudential Regulation Authority (APRA) requirements and because of the royal commission, the banks are all really paranoid about it and because the banks are so paranoid, all those rules have become really restrictive.”

But Mr Beck isn’t the only high-profile Aussie to criticise this unintended consequence of the banking royal commission, which is due to hand down its findings next month.

Speaking with The Age, a number of Australia’s business leaders warned the resulting credit crunch was one of the biggest threats facing our economy this year.

Former LendLease chairman David Crawford, former NAB Australia CEO Ahmed Fahour, KPMG chairman Alison Kitchen and Westpac chairman Lindsay Maxsted all expressed concerns about the situation, with Mr Fahour warning of “very serious consequences” potentially to come.

And Australian economist and former Coalition policy adviser John Adams went one step further, telling slowing credit growth as a result of the change in banking practices could lead to “economic disaster”.

“Australia is currently in the biggest debt bubble in its history. One of the main factors that has led to this bubble building are banks, who for years were providing mortgages to Australians who couldn’t afford them and which were outside of responsible lending laws,” he said.

“The royal commission was successful in exposing bank practices that have been instrumental to these mortgages being issued and as a result has forced the banks to change their practices even prior to the final report and recommendations being handed down.

“Credit growth in the economy has now slowed as a result. This spells economic disaster for an economy that is addicted to debt. Slower growth in household debt means that there are fewer property buyers in the market, resulting in house prices falling sharply in Sydney and Melbourne and a general slowdown in the Australian economy.”

But he said Commissioner Kenneth Hayne shouldn’t be blamed for the credit crunch and the resulting economic slowdown.

“Rather, the politicians, bureaucrats at the RBA, APRA and ASIC and the banks themselves should be held to account for allowing the debt bubble to build to epic proportions,” Mr Adams said.

But while Starr Partners chief executive Doug Driscoll agreed the banking royal commission has caused banks to tighten their lending criteria, he stressed this wasn’t necessarily such a bad thing.

“I think the banks have been a bit too frivolous and now we need to be a bit more frugal, so I don’t think it’s a bad thing that banks are being a bit more prudent — tightening of lending has led to a downturn … but going back a couple of years it was a bit too easy to borrow money for either owner-occupiers or investors,” he said.

“Now it’s not a bad thing institutions are being a bit more responsible in their lending because it was a bit too hard and fast and too easy.”

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Source link Finance News Australia

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