Tom Connell:
Joining me now for more on this, Assistant Treasurer, Michael Sukkar, joining us now from isolation there. Thanks very much for your time, Michael Sukkar.
Minister Sukkar:
Hi, Tom. Good to be with you.
Tom Connell:
Essentially the argument from the Government is that there’s too much onus on banks and that loans are being denied when they shouldn’t be. What’s going to be the effect of this? You’d assume that there’d be some so-called ‘bad loans’ as a result?
Minister Sukkar:
Well not necessarily, Tom. What we’ve seen over the last ten years is the responsible lending obligations become more complex. There’s now more than 100 pages of quite detailed stipulations that banks have to put in place which means that they are taking a much more risk-adverse approach. Ultimately, that doesn’t hurt the banks that hurts everyday Australians who are trying to get a loan for a home or a car or for restructuring some of their own finances to assist their small business that has some interaction with their own personal finances. So the flow of credit in the economy is one of the most important things to ensure economic growth. If you’ve got constrained credit in the economy then that’s a problem and we’ve seen over years, quite frankly, this problem get worse and worse and worse and we’ve seen the banks, as a result of these laws, become risk adverse. We’ve seen Australians see their mortgage application times blowing out so that is a problem. We also have other Australians who just cannot get access to that finance because ultimately the banks, under these laws, are taking a very risk-adverse approach. So these changes are extraordinarily significant for our economy and at a time when we need to turbo-charge growth, encourage people to go out and invest and to borrow, this is the exact prescription that the economy needs at this time.
Tom Connell:
Well you’ve got a lot of agreement from different people. The RBA has indicated something along these lines, a lot of people in industry as well. But at the same time, when you talk about increasing risk, that very word ‘risk’ will mean some increased bad loans. What’s your assurance about how low you expect that figure to be in terms of an increased per cent of loans that go bad?
Minister Sukkar:
Well the Chair of the Reserve Bank made a very good point that, quite frankly, you need a portfolio – from a banks perspective – that has some risk involved. Otherwise, you’re not lending to people who deserve it. Banks don’t have any interest, Tom, in lending to somebody who can’t repay their loan. That’s the first basic principle and what we want to enable more here is for banks to make those assessments and under APRA rules, they’re still required to substantiate people’s income and make sure that they’re able to repay their loan, indeed it’s in their interest to do so. But here, we’re pulling out ASIC, we’re pulling out 100 pages of red tape to enable the banks and consumers to do that more swiftly to ensure that they’re assessing everybody on their own merits.
The Treasurer wrote today in a wonderful op-ed in The Australian, about the circumstances of a recent widow who had $430,000 in the bank but wasn’t able to get a credit card because, under these responsible lending obligations, she was deemed to be a financial risk. I mean, that’s just preposterous. We’ve got people who applied for a mortgage who are being asked how many coffees they buy a week. Now, in the end, those sorts of questions are being driven by the responsible lending obligations, they’re not being driven by the ordinary assessments that you’d think a bank would take when looking to lend to somebody. So we’re removing that red tape. This is, I think, going to be an adrenaline shot in the arm of the economy and you’re quite right, Tom, industry groups around the country, individuals around the country, mortgage brokers who represent everyday Australians around the country, are celebrating this announcement because it’s going to be make it so much easier to get the finance people need to do the things that they want to do in their lives, whether it’s buying a house, a car or supporting other activities in their life.
Tom Connell:
All right, just finally, the MBA – the Master Builders Association – is saying, ‘yes, good move but what about the loan to value ratio of 80 per cent before mortgage insurance is needed?’ What do you think of that? Could that be lower, the amount that you need for a deposit?
Minister Sukkar:
Those are ultimately going to be questions for the banks in response to the capital adequacy requirements and other rules laid down by APRA. So here, by removing the responsible lending obligations – again, which is extraordinarily important – this is placing APRA in a prime position as far as these sorts of questions. Ultimately, I have some sympathy for what the MBA has suggested but those are questions, in the end, for banks following APRA rules because obviously, when you’re lending large sums of money, you want that to be secured and loan to value ratios are, of course, one way that they secure their mortgage. So I’m not going to weigh into that, I think APRA is the right body to make sure that those rules are in place.
Tom Connell:
All right, fair enough. A bit shorter than we aimed but we’ve got to go, I’m sure you’d understand, because we’re going to the Treasurer, Josh Frydenberg. Michael Sukkar, thank you.