Daily Commentary BY THE CURVE TEAM –

Responsible Lending to Go

25th of September, 2020

Responsible lending regulations are set to be scrapped in an announcement by Treasurer Frydenberg today.

Since the GFC, ASIC has imposed tough lending rules on banks which put the onus on banks to ensure a borrower was credit worthy. Although there will still be standards banks must adhere to, they will be relaxed, which signals a shift towards a borrower beware rather than lender beware mandate.

The move aims to have more loans written as the Australian economy recovers from the pandemic. RBA Governor Lowe has said previously that Australia probably errs too much on the cautious side when it comes to lending, with one of the lowest default rates in the world.

It will also assist banks increase their assets, which are currently being diminished by amortisation. This will likely act as an appreciation factor for house prices, which are widely expected to fall at the beginning of next year as loan deferrals are removed.

Yesterday, the treasurer also announced that budget surpluses were off the agenda until unemployment was comfortably below 6%. This comes before the budget announcement on October 6.

The RBA expects that in 2022 the unemployment rate will still be around 7%, which would mean the government will be content running budget deficits for at least the next few years. This will be widely supported, especially by the RBA who have called for more government spending since the start of the pandemic.

Aiding Australia’s economic recovery is the continuing positive news surrounding containment of Covid-19. Victoria’s 14-day moving average sits below 30, which will prompt easing of restrictions come Sunday.

NSW has also further unwound restrictions, allowing concert halls, theatres and cinemas to fill up to 50% capacity. Function centres will also be able to host up to 300 people and weddings will allow up to 20 people to dance!

Today preliminary merchandise trade data will be released, which has no market estimates. Any sign of geopolitical tension with China filtering to trade will be monitored for.

Josh Stewart

Client Relationship Manager