One of Australia's most senior bankers, Westpac's Brian Hartzer, has denied lenders are lowering their credit standards in the rush to sign up new customers.
But with competition heating up in the $1.2 trillion mortgage market, Mr Hartzer also conceded banks must be "alert to the possibility of things getting ahead of themselves".
In a wide-ranging address on Australia's economic future, Mr Hartzer also argued for increased skilled immigration and backed greater use of government debt to invest in infrastructure.
Banks' lending practices have come under growing scrutiny in recent weeks, amid signs the big four are writing more home loans that require smaller deposits, and after National Australia Bank accused its rivals of lowering standards.
Mr Hartzer, who runs the division that holds Westpac's flagship retail bank and St George and is viewed as a potential successor to chief executive Gail Kelly, said on Tuesday there had been no loosening in credit standards at the bank. "We certainly don't see any loosening in credit standards, but I think it's certainly prudent that everybody remains alert to that," he said.
"When we look at households' capacity to cover their borrowing requirements, we still think it's pretty good. Nevertheless, we think it's prudent to continue to be cautious. We do need to be alert to the possibility of things getting ahead of themselves."
Mr Hartzer's comments come after figures from consultancy Digital Finance Analytics this week showed the average loan-to-valuation ratio (LVR) for new mortgages written by the major banks had risen in the past year, due to increased borrowing by investors and first home buyers.
Westpac's average LVR has also risen, from 69 per cent a year ago to 72 per cent.
In September, the Australian Prudential Regulation Authority also noted there had been an increase in the most risky loans with LVRs above 90 per cent.
However, Mr Hartzer said there was "not a lot of evidence" things were overheating, pointing out that delinquency rates were falling and credit growth was slow by historical standards.
Despite the focus on Sydney's real estate market, he said housing remained patchy in other parts of the country.
Westpac has been expanding its home loan book more slowly than rivals over the past year, but this month said it wanted to pick up market share in 2014 as credit growth rebounded.
Separately from his comments on mortgages, Mr Hartzer also said government debt - at 21 per cent of the economy - could be modestly increased as long as it was used to fund investment in infrastructure.