12 Sep 2013

Australian banks urged to tighten lending

3:52 pm on 12 September 2013

Australia's banking regulator is warning banks to tighten their lending standards, after a sharp rise in risky lending and record low interest rates threaten to create a property bubble.

The availability of cheap money and the election of a new government have pushed consumer confidence to a three-year high.

The Australian Prudential Regulation Authority is worried about a spike in lending to those with only a 10% deposit, and it wants banks to test borrowers' capacity to repay loans if interest rates rise.

The ABC reports that it's possible Australia may follow in New Zealand's footsteps to curb risky lending, though Australia's big banks are resisting the idea.

Lending limits will come into force in New Zealand from next month, and regulators in Canada, Norway and Sweden are also implementing similar measures.