* Banking regulator considers removing cap on investorcredit
* Regulations had helped cool prices - regulator
* Westpac raises mortgage rate on fixed-term loans (Adds interest rate changes by Westpac, industry context)
By Paulina Duran
SYDNEY, March 2 (Reuters) - Australia's banking regulator isconsidering removing a cap on loans designed to curb speculatorsfrom driving a debt-fuelled bubble in the country's propertymarket.
Australian Prudential (LON:PRU) Regulation Authority (APRA) ChairmanWayne Byres told a parliamentary committee on Thursday the 10percent annual limit it set on investor credit last year was"probably reaching the end of its useful life". tighter regulations, which also include a 30 percent capto new interest-only loans, have helped slow down lending andcool prices.
Home values across Australia's major cities fell for a fifthstraight month in February with the once red-hot Sydney marketnow offering negative returns. loan growth was now well below 5 percent, half therate in 2014, the regulator said. New interest-only loans hadfallen by a third to about 20 percent.
"We think the quality of lending the banking system is doingtoday is certainly higher and better than it was a few yearsago," Byres said.
"The general dynamics in the market suggest it (the cap) ispotentially becoming redundant, although there are someinstitutions still growing quite quickly."
Removing the cap would allow the banks to increase thenumber of investor loans they write, stimulating credit.
But looming new capital rules will allocate more risk andcapital to investor loans, potentially more than offseting theimpact of any rollback of the cap. Friday, Westpac said it would raise rates by 1-25 basispoints for all types of fixed-rate mortgages, with effect fromMarch 7.
"These changes align with our goal to manage revenue,growth, margin, portfolio composition and risk," a Westpacspokesperson said.
Australia's major banks, Commonwealth Bank CBA.AX ,National Australia Bank Ltd NAB.AX , Australia and New ZealandBanking Group ANZ.AX and Westpac Banking Corp WBC.AX , lastyear controversially cited tighter lending rules to justifymortgage rate increases.
The so called "Big Four" control 80 percent of the lendingmarket and have posted record profits for years. They have beenmired in controversy and scandal recently, including allegationsof interest-rate rigging.
Out-of-cycle mortgage rate rise, one that is not in tandemwith moves in the official cash rates, have generated thebiggest public outcry, as home-owners struggle to meet highrepayments in the face of sluggish wage growth. banks reported a combined net profit of A$31.5 billion($24.4 billion) in the 2017 fiscal year, up 6.4 percent on ayear ago, according to KPMG. ($1 = 1.2887 Australian dollars)