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Home loan credit rules set to tighten

A survey of loan officers in all of Australia's big and regional banks reveals they expect credit standards to be tightened over the next six months, with home borrowers, consumers and small to medium sized enterprises the hardest hit.

Underwriting standards for large corporates are expected to remain unchanged.

Investment bank UBS conducted the survey of bank chief financial officers and chief risk officers in December and found credit underwriting standards had been tightened more for consumers than corporates in the last six months of calendar 2009.

The bankers said standards for home borrowers and property companies had been tightened the most, followed by loans to banks and financial services companies and the consumer segment overall.

Lending standards for personal credit card applications and loans to large companies and the corporate sector had been tightened “somewhat”.

Credit demand during that time increased somewhat for consumers overall and home loan borrowers, while demand for business loans and all other loan categories either held steady or declined.

Demand from large corporates and property companies dropped the most.

For corporates, the loan terms that changed the most during the second half of 2009 was pricing, which tightened considerably, followed by collateral requirements, and then non-interest fees and maturity dates.

For home borrowers, loan pricing tightened somewhat, followed by non-interest fees, and collateral requirements.

Home loan maturities remained unchanged.

Banks' rising funding costs was cited as the top reason for tightening lending standards for both corporates and home borrowers, followed by the general economic environment.

But competition from other banks also proved a strong driver.

Tougher proposed regulatory capital requirements, unemployment and the prospects for the housing market had no impact on decisions to tighten borrowing standards, bankers said.

Bankers expect credit across Australia to grow at between five and 10 per cent in calendar 2010, while UBS forecasts two per cent growth.

Credit demand by all borrowers is expected to hold steady for the next six months.

Bank margins will fatten by up to 10 basis points, the bankers said.
SOURCE: Alison Bell – Business Day

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