The Australian Prudential Regulation Authority (APRA) has begun consulting on proposed changes to banks’ credit risk capital settings aimed at supporting lending while maintaining financial resilience.
The changes, which were first flagged in March, are part of a package of reforms to bank capital and liquidity settings that are intended to ensure the sector is resilient to future shocks, responsive to evolving conditions, and able to continue supporting households and businesses through the cycle.
While upholding APRA’s continued commitment to “unquestionably strong” settings, today’s consultation paper identifies several areas of corporate lending where APRA believes standardised risk weights can be lowered to better align with the underlying risk, without undermining resilience 1
The key proposals include:
- Infrastructure lending – to allow a lower risk weight for large domestic public infrastructure exposures.
- Unrated corporate lending – to allow a lower risk weight for high-quality unrated corporate exposures subject to certain criteria.
- Land acquisition, development and construction (ADC) lending – to adjust criteria to allow for more exposures to qualify for the lower 100 per cent risk weight for residential property development.
In combination, APRA expects these measures to increase banks’ lending capacity and support investment, while remaining consistent with an “unquestionably strong”, risk-based capital framework.
APRA Chair John Lonsdale said today’s proposals aligned with APRA’s strategic objective to “get the balance right” by identifying opportunities to reduce regulatory complexity and burden without unduly increasing risk.
“At a time of global economic and geopolitical uncertainty, we believe that Australia’s ‘unquestionably strong’ bank capital framework remans appropriate to safeguard financial stability in a high-risk environment.
“But we also recognise the importance of periodically reviewing our settings to ensure that the framework is calibrated to the underlying risks and that we’re achieving the right balance between safety and stability, as well as efficiency and competition.
“By making our risk weights for some categories of corporate lending more granular and risk-sensitive, we believe we can improve the efficiency of the capital framework without compromising core prudential objectives. By reducing the amount of capital banks need to hold against these categories of loans, it should give banks greater capacity to deploy released capital in a manner that supports broader economic outcomes,” Mr Lonsdale said.
Today’s consultation on credit risk is the first of three workstreams that comprise the capital and liquidity package. APRA intends to finalise credit risk capital changes in the second half of 2026 for a proposed effective date of 1 April 2027.
Proposals relating to liquidity risk and market risk will be consulted on in the next 12 months.
Taken together, APRA expects the package will be cost neutral and strengthen the financial resilience of Australian banks.
Today’s consultation paper, draft standards and guidance are available on APRA's website at: Getting the balance right - Enhancing credit risk capital for authorised deposit-taking institutions