The Australian Prudential Regulation Authority (APRA) will review banks' lending practices over the next 12 to 18 months to safeguard against potentially weaker lending standards amid slowing credit growth, the regulator said Thursday.
In the first half of the review period, APRA will prioritize banks' lending to small and medium-sized businesses before increasing its focus on housing lending standards in the second half of the period.
The review forms part of the regulator's latest corporate plan, under which it plans to maintain financial system safety and stability without creating undue costs for the industry.
"As we look across the operating environment, it's clear that the international and domestic economic environments remain challenging," said APRA Chair John Lonsdale. "Geopolitical tensions continue to have economic impacts on inflation, trade relationships and cost-of-living pressures."
Additionally, APRA will conduct a joint stress-test exercise with the Reserve Bank of New Zealand to gauge resilience against a severe economic downturn at both the parent and subsidiary bank level. It will also start work on a new system-risk stress test to build on the entity-level testing.
The shares of Australia's top banks, some of which have flagged a slowdown in mortgage applications, were lower in recent Thursday trade.
Commonwealth Bank of Australia (ASX:CBA) fell nearly 3%, while ANZ Group Holdings (ASX:ANZ, NZE:ANZ), Westpac Banking (ASX:WBC, NZE:WBC), National Australia Bank Limited (ASX:NAB), and Bendigo and Adelaide Bank Limited (ASX:BEN) all shed about 2%.