Assessment Pillars
How lending risk is measured in practice
Australian lending decisions are evaluated through a structured measurement framework designed to interpret risk consistently
across residential, commercial, and asset finance. At the most fundamental level, every credit decision reflects
the Four Cs of Credit:
- Character
- Capacity
- Capital
- Collateral
In operational lending assessment, these foundational risk dimensions are examined through a set of interdependent
assessment pillars, each measuring a distinct category of financial or structural risk. No pillar operates in isolation, and strength in one area does not override weakness in another. The system is designed to contain risk, not to optimise outcomes for individual borrowers.
The Five Assessment Pillars
Equity & Deposit Framework
Measures the borrower’s initial capital position, leverage, and resilience to value change.
This includes:
- deposit size and usable equity
- Loan-to-Value Ratio (LVR) settings
- Lenders Mortgage Insurance (LMI) requirements
- guarantor or guarantee structures
→ View Equity & Deposit Framework
Income & Serviceability Assessment
Measures whether repayment obligations can be sustained
over time and under stressed financial conditions.
This includes:
- income reliability and verification
- living expenses and liabilities
- servicing buffers and stress rates
- surplus cash-flow capacity
→ View Income & Serviceability Assessment
Security Acceptability & Collateral Risk
Measures the quality, marketability, and enforceability
of the asset offered as security.
This explains how:
- property type, location, and zoning affect lending
- condition or liquidity alters approval
- certain securities restrict borrowing options
→ View Security Acceptability & Collateral Risk
Entity, Debt Structuring & Tax Context
Measures how ownership structures, legal entities,
and debt interaction influence lending treatment.
This includes:
- income recognition across entities
- guarantee and liability structure
- access to equity and refinancing pathways
- taxation and enforceability considerations
→ View Entity, Debt Structuring & Tax Context
Regulatory & Transaction Context
Measures how legal timing, documentation, and policy
requirements affect whether a transaction can complete.
This explains why:
- approvals may lapse
- settlements may fail
- complex or interstate transactions carry additional risk
→ View Regulatory & Transaction Context
How the Pillars Work Together
Lending assessment evaluates all five pillars simultaneously.
For example:
- weak equity may tighten serviceability or security limits
- complex ownership may reduce lender availability
- execution or timing failure may negate otherwise
- acceptable credit metrics
The framework does not compensate for weakness.
It layers constraints to maintain acceptable risk.
Why Lending Outcomes Differ
Borrowers are often surprised when:
- higher income does not increase borrowing capacity
- similar assets produce different lending outcomes
- approval does not guarantee settlement
- equity exists but cannot be accessed
These outcomes are not anomalies.
They reflect the interaction of all assessment pillars together.
Scope of This Page
This page explains how lending risk is measured within
Australian credit assessment frameworks.
It does not:
- assess individual circumstances
- recommend borrowing strategies or lenders
- provide credit or financial advice
Understanding the framework is separate from applying
it to a real lending situation.