Easy lending laws boost Commonwealth Bank, Westpac, NAB, ANZ share prices on ASX 

  • September 27, 2020 08:00 AM AEST
  • Team Kalkine
Easy lending laws boost Commonwealth Bank, Westpac, NAB, ANZ share prices on ASX 

Summary

  • CBA, Westpac, NAB and ANZ share prices jumped as the Federal Government announced simpler lending rules.
  • Josh Frydenberg revealed that laws governing personal loans, mortgages, credit cards and payday lending would be relaxed to remove unnecessary barriers to the credit flow.
  • The Government’s objective is to replace the principle of “lender beware” to “borrower responsibility” to ensure credit availability.
  • While ABA appreciated the move stating that the changes will give more flexibility to banks and strong protection to vulnerable consumers, Labor party stated that loose lending standards would lead to higher profits, dividends and more money into overpriced housing, which is not the path to recovery.

Share prices of big banks surged after the Federal Government announced that lending laws would be eased to make it simpler to get a mortgage. Investors flocked towards the banking giants after the news, with the financial sector emerging as an apparent frontrunner.

On 25 September 2020, Share prices of Westpac Banking Corporation (ASX: WBC) rallied 7.39% to $17.58, National Australia Bank Limited (ASX: NAB) rose 6.86% to $18.37, Commonwealth Bank of Australia (ASX: CBA) was up 3% to $66.13, and Australia And New Zealand Banking Group Limited (ASX: ANZ) increased by 6.28% to $17.93.

Other banks like Bendigo and Adelaide Bank (ASX: BEN) was also up 4.76%, and Bank of Queensland Limited (ASX: BOQ) rose 2.81%. S&P/ASX 200 gained 1.5% to close at 5964.9 on 25 September. Majority sectors ended up in the green zone with banks and miners emerging as top gainers.

Relaxed lending laws for banks

Treasurer Josh Frydenberg announced on 25 September that borrowers would be able to gain faster access to loans including personal loans, mortgages, credit card and payday lending.

He stated that the laws that help in deciding if the customers can afford loans would be loosened, putting more responsibility on the borrower to ensure credit availability as they will have to give accurate information about their ability to repay a loan.

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The simpler rules target to free up credit and lift the economy by ending perplexity over lending commitments for banks and finance companies.

The changes are in response to increasing complaints about court clashes and replication of regulators in home and personal lending, raising worries that stringent credit laws would limit the economic growth of the country.

With the Government planning to disclose tax cuts and spending measures in the 6 October budget, the lending changes are anticipated to enhance access to credit by March 2021 if the Parliament approves revisions to the Credit Act.

DO READ: Economic Charter Under the Scanner; All Eyes on RBA Rate Cut Bets

The Treasurer stressed that this is a period of high importance to remove any unnecessary barriers to the credit flow as a free flow of credit is crucial for the economic recovery of Australia.

Duplication between ASIC and APRA to end

Banks have to abide by the guidelines of the Australian Prudential Regulation Authority (APRA), but they also face inspection by the Australian Securities and Investments Commission (ASIC) for their responsible lending commitments.

ASIC will now be removed as a regulator of bank lending obligations to end duplication after the regulator lost Federal Court action against Westpac over home lending requirements.

DO READ: Westpac to pay A$1.3 billion in fines for misconduct

Mortgage brokers will not be subject to responsible lending obligations now, though the Government anticipates customers to be protected by the best interest requirement that will operate from 1 January.

ANZ Chief, Shayne Elliot in a parliament enquiry held in 2019 stated that the duplication between ASIC and APRA acted as a hindrance in providing loans. He also showed an inclination for greater transparency, clarity and guidance from the regulators.

The Government is also pledging greater shields for consumers taking on small amount credit contracts (SACCs).

Further, there are also plans to launch licensing obligations for debt management firms which are after consumers for their repayments by the Government. The move will protect consumers from destructive practices.

The loan rules will be streamlined within Australia to improve the credit access with the objective of switching the philosophy of “lender beware” to “borrower responsibility” principle.

New concerns evolving

The new changes came after many claimed that the tax policies of Australia have become too restricted amid Hayne Royal Commission.

RBA had highlighted last month that strict regulatory provisions had put credit growth on hold with some banks also admitting that they are being forced to be overly conservative.

INTERESTING READ: All that you need to know about RBA's toolkit

Australian Banking Association also responded positively to the new changes in credit laws stating that the new laws will simplify lending rules and safeguard borrowers, while also improving protections for vulnerable consumers.

However, Shadow Treasurer Jim Chalmers expressed concerns that the new changes in the lending rules did not go in line with the recommendations of the Banking Royal Commission. He stated that Labor wanted to see households and businesses with adequate finance but does not want the consumers to be caught in debt traps.

Greens Senator, Nick McKim stated that Labor would seek Senate’s support to stop the changes from passing through. He further said that easing the lending laws will result in higher profits, dividends and more money flowing into the costliest housing in the world, not a pathway to recovery.

 

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