Regulators have resorted to pleading with banks to keep lending, with the latest APRA data showing a big drop in loan approvals.Banks and other ADIs approved A$359.3 billion of new loans over the year ending December 2018, according to the quarterly authorised deposit-taking institution property exposures statistics released yesterday.This was a decrease of $25.1 billion (or 6.5 per cent) on the year ending December 2017.Of these, new owner-occupied loan approvals fell 2.9 per cent over the year.Investment loan approvals fell 14.0 per cent.Speaking in Perth, Michele Bullock, Assistant Governor (Financial System) at the RBA addressed the lending slowdown.Both the investor lending benchmark and the interest-only lending benchmark have been removed for banks that have provided assurances on their lending policies and practices to APRA, she said. "But the improvements in lending practices implemented by the banks over the past few years have resulted in credit conditions being tighter than they were a few years ago. "Application processes have been taking a bit longer as lenders are being more diligent about verifying borrower income and expenses [and] borrowers are generally being offered smaller maximum loans, [while] some borrowers are finding it more difficult to obtain a loan."Bullock said: "Banks are more closely adhering to their lending policies, resulting in fewer exceptions being granted and there are fewer high LVR and interest-only loans being approved."Noting "some increased risk aversion" thanks to the Hayne royal commission, Bullock argued "tighter credit conditions do not appear to be the main reason for declining housing credit growth."The evidence points towards declining demand for housing credit as being a more important factor."From a financial stability perspective, prudent lending standards are a good thing … But there needs to be a balance. "The regulators are not proposing any further tightening in lending standards. "And the appropriate amount of credit risk is not zero - banks need to continue to lend and that will inevitably involve some credit losses."