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Australian banks are facing increasing pressure to build greater balance-sheet strength in order to cope with a plausible future housing-market downturn after separate interventions from the Australian Prudential Regulation Authority (APRA) and the International Monetary Fund (IMF).

Last Friday, the IMF issued a report saying that Australian lenders should have larger buffers for absorbing losses in the event of a housing-market collapse. On the same day, APRA said it expected banks to continue to expand their capital buffers and that it would no longer wait for global regulatory bodies to make changes before setting the next wave of domestic capital rules.

Following a resurgence in lending to landlords, Wayne Byres, chairman of APRA, warned lenders they would be penalised if they exceeded the regulatory body’s 10% cap on housing-investor credit growth.

It’s clear from these comments that ensuring the stability of the Aussie housing market and the overall economy are firmly on the agenda of financial regulators.

The IMF said tougher restrictions on bank lending may also be needed if Australian house prices or mortgage debt accelerates again. It also wants authorities to be vigilant against risks in the housing market.

“Financial regulatory authorities would need to stand ready to intensify targeted prudential measures, if lending or house price growth were to re-accelerate, while advancing the implementation of the regulatory reform agenda,” the IMF said in a statement.

Banks already have a 10% speed limit on their annual growth in housing-investor loans. In recent weeks, some economists have said this growth cap should be lowered to prevent the housing market from overheating.

The IMF stressed that greater restrictions on bank lending should be treated as a “contingency,” as tougher credit restrictions could make it harder for mining areas to recover from the commodity price bust.

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