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Commonwealth Bank of Australia (CBA) is in a world of pain as their investment lending portfolio reaches 9% – just 1% shy of the Australia Prudential Regulation Authorities (APRA) 10% cap.

As far back as November 2016 CBA started to try and slow down their investment lending growth, first by raising rates then followed by an announcement that they will no longer accept investment loan refinances. They continued to tighten their investment lending space by lowering the lending value ratio (LVR) to a maximum of 90% including LMI and finally yesterday announcing that they will follow Westpac (WBC) and the National Australia Bank (NAB) by also raising their rates.

But there is a missing piece to this jigsaw puzzle and that is that CBA still has millions of dollars of investment loans that are approved but not yet settled. Until the loan settles it doesn’t appear in the investment lending book, so while they current sit under the 10% limit, if they were to settle all of the investment loans in their pipeline, they would land well above the cap and be certain to attract APRA’s attention.

Solution – cancel settlements! CBA has taken to cancelling or delaying refinance settlements where the lending has an investment portion. There have been cases where an owner occupied refinance, with an investment portion for later use, has had the settlement cancelled because CBA just can’t take on anymore investment lending.

Why just refinance settlements you ask? Well of course we would all be running off to our lawyers if our purchase settlements where cancelled, breach of contracts and penalty interest would be abound and CBA would face thousands of claims for lost money by their prospective clients.

What is next? If CBA can’t slow down their investment lending growth, I tip that they will announce that they will no longer fund investment property purchases.

It is a shame CBA didn’t manage the investment loans in their pipeline earlier so that they had a better handle on keeping their investment lending portfolio under the magic 10% that APRA has set down.

Cancelling or delaying settlements for new to bank clients is not a good way to start a banking relationship.