* APRA to remove 10 pct cap on investor lending growth from July
* Banks need to show strong policies, promise better practices
* Cap on interest-only lending remains in place (Adds APRA chairman comment)
By Paulina Duran
SYDNEY, April 26 (Reuters) - Australia's banking regulator said on Thursday it would remove a cap on lending to property investors - designed to rein in speculative investments - as high risk lending had now moderated and there had been an improvement in lending standards.
A 10 percent limit on annual growth in banks' housing investor loan portfolios will no longer apply from July, provided growth has been below that level for at least 6 months and banks have strong lending policies, the Australian Prudential (LON:PRU) Regulation Authority (APRA) said.
APRA said, however, that a 30 percent cap on growth in interest-only lending that was introduced in March last year will remain in place.
"The environment remains one of heightened risk and there are still some practices that need to be further strengthened," Chairman Wayne Byres said in a statement.
"APRA is therefore seeking assurances from authorised deposit taking institutions (ADI) boards that they will maintain a firm grip on the prudence of both policies and practices."
Banks that do not meet APRA's conditions will still need to comply with the 10 percent cap, introduced in 2014 as part of efforts to reduce the risk of a property price bubble.
Investor loan growth has fallen to well below 5 percent, half the rate in 2014, APRA said in March.