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Bank of Queensland beefs up home loan credit checks

Bank of Queensland has moved to apply tighter affordability checks to home loans. Bank of Queensland has moved to apply tighter affordability checks to home loans.
Bank of Queensland has moved to apply more thorough affordability checks for home loans, after the corporate regulator found its processes did not comply with responsible lending laws.

The Australian Securities and Investments Commission said on Monday it had raised concerns with the bank over the way it assessed home loan applications.

Rather than asking borrowers about their living expenses,  ASIC said the bank had been relying on a benchmark figure known as the Henderson Poverty Index to estimate the living expenses of customers.

The index is an attempt to estimate the minimum budget needed to cover basis living expenses.

ASIC said that relying on the poverty line was "not consistent" with responsible lending laws.

"Bank of Queensland has updated its home loan application forms to obtain more information about a customer's living expenses," ASIC said.

"The bank will carry out an assessment of the suitability of a loan using the higher of either the living expense figure supplied by the customer or an appropriate benchmark figure."

The bank's chief risk officer, Peter Deans, said the bank had moved away from the Henderson Poverty Index in November 2014.

"We have also been examining customers' declared expenses more closely to determine the loan repayments they can afford," he said.

Mr Deans added that the bank had increased the interest rate "buffers" it applied to assessing how borrowers would be affected if interest rates rose.

Banks' credit assessments have been in the spotlight in recent months, as regulators seek to make sure sound lending standards are maintained in an environment of record low interest rates.

Australian Prudential Regulation Authority chairman Wayne Byres said this month there were significant gaps in how lenders were assessing borrowers' incomes.

A few lenders' credit assessments assumed the borrower could live on even less than what they volunteered in their loan application, something Mr Byres said was a "major concern".

Author: Clancy Yeates

Source: The Sydney Morning Herald

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