Market shares and share prices drive bank lending decisions

Banks to take on more risk to maintain their market share in home lending, the Reserve Bank of Australia warned in its latest half yearly Financial Stability Review. The RBA said that lending practices were “diverging some way from the tried-and-tested methods of the past”, as “low-doc lending” was growing rapidly and more use was being made of mortgage brokers. “To the extent that these various changes are the outcome of a more competitive market they are to be welcomed, provided that lending institutions fully understand the risks involved and are pricing those risks appropriately,” the RBA said in its report. “Whether or not this is the case will only be evident in a weaker economic environment.”

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