Westpac chief executive Brian Hartzer has denied banks' post-royal commission tightening of the mortgage purse strings have led to an economic slowdown.
Mr Hartzer acknowledged the existence of the so-called wealth effect - the idea that homeowners spend more when rising property values make them feel richer - but argued bank policies aren't to blame for house prices falling.
"Our view is that the wealth effect is real - if hard to quantify - but that price declines are more to do with housing supply and demand factors than with banks' tightening credit," Mr Hartzer told MPs on Friday.
Mr Hartzer admitted Westpac was taking longer to process loans due to more extensive verification of documents, but said his bank still lent $75 billion in mortgages in the last full financial year.
"The bigger issue is that not as many people - particularly investors - are applying for loans," Mr Hartzer told the House of Representatives' economics committee in Canberra.
News that makes sense
Your trusted source for staying up-to-date with the world around you. Get free daily news updates and analysis, straight to your inbox.
"We see this as a natural response to a recent increase in the supply of housing, along with a fall in foreign investor demand and increased uncertainty about future returns from housing investment after a significant run-up in prices."
The Australian economy, 15 per cent of which is represented by construction, was this week shown to have grown by a below-expectation 2.3 per cent in 2015 and to be in a so-called per capita recession.
The Ai Group also pointed out this week that home building activity continued to drop off in February.
Mr Hartzer said a drop in demand was to be expected following the boom of recent years.
"What we're seeing is a cyclical adjustment after six strong years of growth, that so far regulators and banks are managing reasonably well," he said.
Mr Hartzer also repeated his opt-stated view that political and regulatory uncertainty were hitting the broader economy.
