MELBOURNE (Reuters) - Concerns over the risks from falling prices in Australia's housing market have eased, but lenders need to do more to spur small business growth, the nation's financial regulators said on Wednesday following a quarterly meeting.
The Council of Financial Regulators, which brings together four agencies, said while growth in housing credit was subdued, particularly among investors, lending to owner-occupiers has picked up in the two biggest cities, Sydney and Melbourne.
That suggested credit growth is likely to strengthen.
"Overall, near-term risks related to the housing market have lessened as housing market conditions nationally have improved," the council said in its December quarterly statement released on Wednesday following a meeting on Nov. 29.
Financial risks have grown in the past year as Australia's economic growth has slowed and unemployment has ticked higher, putting pressure on households with large mortgages. The housing sector accounts for 40% to 50% of household and bank assets.
Record low interest rates have worked to reignite home prices, which posted their strongest month in 16 years in November, however data on Wednesday showed the economy struggled in the September quarter due to weak consumer spending.
Worries about tighter lending standards hurting small businesses were discussed by the council, an issue which Treasurer Josh Frydenberg has raised with the country's 'Big Four' banks in an effort to boost a sluggish economy.
Banks have reined in lending following a public inquiry last year which found widespread misconduct and irresponsible lending tactics in the sector.
The Australian Securities and Investments Commission is working on responsible lending guidance due for release in the next few weeks, in which it will confirm that responsible lending requirements do not apply to loans made mainly for business purposes, the council said.
"Council members stressed that the flow of credit is fundamentally important to the functioning of the Australian economy and discussed the concern that lenders' risk appetite for some types of lending may have swung too far toward caution," their statement said.
The council brings together the Australian Prudential (LON:PRU) Regulation Authority, the Australian Securities and Investments Commission, the federal Treasury and the Reserve Bank of Australia.
The group met with Frydenberg and the financial crimes watchdog AUSTRAC last week to discuss a range of issues, including cyber security and the country's biggest money-laundering scandal, involving Westpac Banking Corp (AX:WBC)