Below is a link to a very important article written by Clancy Yeates the Banking and Finance Reporter for the Sydney Morning Herald. I would strongly suggest that you keep an eye out for articles written by Clancy as they will provide us all with pertinent signposts as to how the economy and investment markets are functioning in the real world against our expectations based upon our Economic Cycle Action Plan and The Effortless Advantage.
APRA announced last year restrictions on the banks to constrain the growth in their investment lending books. History clearly tells us that this is precisely the type of action that we have come to expect from the legislators in the very early stages of a new investment cycle.
The line in Clancy’s article “While the LVR changes bring Westpac into line with rivals, they also suggest banks are relaxing some of the tighter lending conditions that were introduced last year..” is EXACTLY what our model tells us needs to start occurring next. Now this relaxing of lending criteria will not transpire immediately and some time will be needed for this stance to permeate the Australian lending culture.
But we will assume that this is the start of the next phase of our long-term economic cycle and now look for continued validation of this lending mindset.
We know that a bank’s business model is NOT to “Lend Money” but much more importantly it is to “Extend Credit”. So no matter what the current legislative environment they will always be looking for new and innovative ways to create more credit.
Changing lending cultures and new innovative products (keep your eye out for say generational lending products with lending terms longer than the current 20 and 25yr loans) are likely to have a huge impact on the level of available credit in this cycle. Further expansion could be driven by the growth in Non-Bank Lending (again see Clancy Non-banks set to boom thanks to APRA crackdown on property investors) or even the rise of international banks who are likely to permeate our banking sector this cycle.
We know that history tells us the biggest booms will be where the most amount of credit is extended – Dubai and Ireland are points in case here. So keep an eye on what Clancy has to say as he is likely to provide us with an excellent commentary as the cycle progresses.
A link to the original article can be found here.
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