SYDNEY, Sept 26 (Reuters) - Australia’s treasurer said on Thursday regulators needed to ensure they were not overly tough in enforcing lending rules after an inquiry called for stricter enforcement of standards, saying restricting credit could further weaken the economy.
Josh Frydenberg’s comments echoed remarks from Prime Minister Scott Morrison earlier this week who said while it was important to address misconduct, he did not want banks to be “overly sheepish” and cut off economic opportunities.
“Should responsible lending laws be applied too stringently, they will also negatively impact consumer behaviour,” Frydenberg said at an event hosted by the Australian Financial Review in Sydney.
Banks have tightened processes for loan approvals and credit growth has slowed in the aftermath of a year-long Royal Commission inquiry into financial sector misconduct that called for a more prominent presence by regulators.
“It is in everyone’s interest that the aspirations of hard-working families are not collateral damage in this regulatory process,” Frydenberg said.
Last month, a court dismissed a case brought by the Australian Securities and Investments Commission (ASIC) against Westpac Banking Corp for approving mortgages without adequate credit checks, even though the bank had agreed to a settlement.
Frydenberg called on ASIC to maintain a “principles-based” rather than a prescriptive approach to policing responsible lending obligations.
“Common sense dictates that a sensible balance needs to be struck because an unduly restrictive application of these obligations can do as much harm as an overly lax one,” Frydenberg said.
Australia’s economy has had 28 years of uninterrupted growth, although it has hit a soft patch with annual growth slowing to 1.4% in the June quarter, the weakest in a decade.
On Tuesday, the central bank listed sluggish household consumption and a fall in house prices, together with global uncertainties as among the factors hurting the country’s economic growth.
With ultra-high household debt levels, home lending growth in the past year has been falling steadily to a record low of 3.3% in July. (Reporting by Paulina Duran; Editing by Jacqueline Wong)