Impact of the APRA lending crackdown on the financial system

USE THIS TEMPLATE PLEASE!

http://www.mortgagebusiness.com.au/breaking-news/8829-apra-figures-support-lending-   crackdown

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that is the article this paper needs to be written on! please check the marking guide also this is only a briefing note! thanks

Overview

Provide an overview of the issue that you have been allocated. The audience of this is your professional peers working in the financial services industry.

This should draw from multiple sources in addition to the stimulus piece with a minimum of five references in addition to the stimulus. Reference consistantly using Harvard style.

This answer should be no more than 400 words.

Potential Impacts – Positive

Discuss the potential positive impacts on the financial system. This could include regulatory, efficiency, effectiveness, risk and cost/profitability. Point form is allowable, however each item should be justified (not just stated) and appropriately referenced.

This answer should be no more than 300 words (500 in total for positives and negatives).

Potential Impacts – Negative

Discuss the potential negative impacts on the financial system. This could include regulatory, efficiency, effectiveness, risk and cost/profitability. Point form is allowable, however each item should be justified (not just stated) and appropriately referenced.

This answer should be no more than 300 words (500 in total for positives and negatives).

Course Reflection

Reflect on how what you have learned in the course helped you develop your answers to the responses the previous sections.

This answer should be no more than 200 words.

Summary

Summarise the issue, the key impacts and make a recommendation on the ‘position’ the business should take on the issue.

This answer should be no more than 100 words (not included in the overall word limit).

Reference List

Up to 500 words (not included in overall word limit) using a consist and accepted format (Harvard or APA)

Overview

            The Australian banking system is highly characterized by the high prevalence of housing loan assets (Byres 2015). Lending for housing has over the years become the largest business undertaking carried out by Australia banks due to its profitability and the minimal risks involved. Various entities have sprouted up, including building societies and credit unions that have turned into housing vendors. According to Byres (2015), housing lending accounts for approximately forty percent of the banking industry and about two-thirds of the total loan assortment. Bendel (2015)  reviews that the Australian Prudential Regulation Authority (APRA) statistical reports suggest that there is an accelerating growth in investment and interest-only lending. Consequently, these forces have led to increased growth in the price of housing compared to the subdued growth of family income (APRA 2014). The purpose of this paper is to address the impact on the financial system due to the recent crackdown in leading by APRA.

            Bendel (2015) states that investor lending rose from 11.7 to 18.6 according to the  APRA statistics in 2013-14 and 2014-15 respectively. The growth was also witnessed in the home loans sector where the increase was from 35.5 percent in 2013-14 to 39 percent at the close of 2014-15 (Bendel 2015). The growing contribution of the total loan figure by interest-only loans that are considered more riskier are owner-occupier loans, is an aspect that the financial regulator is critically concerned about (Bendel 2015). According to the APRA, the nature of the financial system requires being carefully monitored to reduce the risks. Bendel (2015) notes that households with mortgages are highly exposed to debt with each having an average of $243,000 on their home loan by 2014-15, representing an increase of 2.1 per cent compared to the previous assessment. The APRA has implemented significant tightening of the home lending processes, with the crackdown that was initiated in 2014 (Janda 2016).  Despite this, various parties such as the multinational real estate groups have warned of the severe impacts the APRA crackdown might have on the property markets in Australia. The following discussion presents the unpredictable consequences of this venture.

Positive Impacts             As a result of the APRA crackdown, the big four banks have taken an initiative to regulate their lending in investment in the property sector. The APRA prospects suggest that the housing lending should at least increase by ten per cent every year. In line with this policy, the APRA confirms that the banks will maintain their licenses despite the failure to adjust their business models, although the regulator might ask them to lift their capital reserves. The APRA aims at increased mortgage lending that will facilitate continuous growth in housing. Subsequently, there will be better living conditions that are coupled with various improvements in the social sector. A high-pitched emphasis on higher-risk mortgage lending includes a high loan-to-value and high loan-to-income ratio loans, borrowing for investment, and opportunities for new borrowers…

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