Lend wisely:Australian banks urged

The Reserve Bank is urging Australia’s home lenders to maintain “prudent” standards, when the good times return.

Luci Ellis, who heads the bank’s Financial Stability Department, delivered the warning, in a speech to home lenders in Sydney.

“If lenders were to ease lending standards beyond the point of prudence, they would not be doing anyone any favours,” Ms Ellis said.

“Their customers, the borrowers, would be overburdened by their debts.

“The firm themselves would face difficulties if loan defaults were to rise.

“And financial stability would be much harder to maintain.”

She said she understood the temptation.

“It must be hard to resist the disappointed customers who just want to borrow that bit extra to purchase their dream home,” Ms Ellis said.

“Especially when the loan officer is also trying to make budget on new loan approvals.”

“But in the experience of the United States, we have seen what can happen when lenders yield to that temptation,” Ms Ellis said.

She said she did not presently see any signs of lax lending in Australia.

“But there will be times – good times, when everything seems rosy – when lenders will find it hard to maintain the necessary prudence,” Ms Ellis said.