ASX 200 bank shares fall flat amid flurry of new regulations

Banks shares are lagging behind the ASX 200 on Wednesday. Here’s why.

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ASX 200 bank shares are waking up to a number of new rules and reforms from regulators, the Australian Prudential Regulation Authority (APRA) and the Australian Banking Association (ABA) on Wednesday.

At the time of writing, all four major banks are underperforming the S&P/ASX 200 Index (ASX: XJO) which is up 0.11% to 7,256.1.

Commonwealth Bank of Australia (ASX: CBA) has retreated 2.28% to $103.095. National Australia Bank Ltd (ASX: NAB) is 0.22% lower to $27.72. Westpac Banking Corp (ASX: WBC) is down 0.46% to $25.69. Australia and New Zealand Banking GrpLtd (ASX: ANZ) is also lower, down 0.29% to $27.75.

ASX 200 bank shares underperform as new regulations revealed

APRA tightens lending rules

The Australian housing market is rising at its fastest annual pace since June 1989 with home prices surging more than 20 per cent over the past year.

APRA announced new measures on Wednesday to further de-risk lending practices by increasing the minimum interest buffer banks use to assess the serviceability of home loans.

In a letter to banks, APRA told them to increase the buffer by 0.50 percentage points from 2.5 per cent to 3.0 per cent above the loan product rate.

APRA Chair Wayne Byres said this is a targeted and judicious action designed to reinforce the stability of the financial system. 

The move was designed at ensuring “heavily indebted borrowers” could meet the debt they were taking on today and, more importantly, in the distant future.

“More than one in five new loans approved in the June quarter were at more than six times the borrowers’ income, and at an aggregate level the expectation is that housing credit growth will run ahead of household income growth in the period ahead,” said Byres.

ASX 200 banks hit by swathe of new reforms

Also weighing on ASX 200 bank shares is a sweeping set of reforms from the ABA to improve financial services and strengthen the protection for customers.

Chief executive officer at the ABA Anna Bligh said that this month’s changes represent a major step forward for all stakeholders following the 2018 Royal Commission.

Six new reforms will be introduced this week, including:

  • Anti-hawking laws: banks are banned from unsolicited selling of financial products to customers
  • Add-on insurance laws: a cooling-off period between calls or contact for add-on insurance products so customers can make informed purchasing decisions
  • Design and distribution obligations: ensures products are better targeted to the right customers
  • Faster complaint resolution: customer complaints will need to be resolved faster, with clear reasons for the outcome reached
  • Better reference checking: mortgage brokers and financial advisers will require better reference checking to ensure consistent practices throughout the industry
  • Increased breach reporting requirements: banks will need to report more information about non-compliance and misconduct to regulators

“Two and a half years ago, the banking industry put its hand up and said we must do better, and looking back now, we have made strong progress,” said Bligh.

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