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APRA finalises its macroprudential policy framework

The Australian Prudential Regulation Authority (APRA) has finalised amendments to its prudential framework to give effect to macroprudential policy measures, following consultation with industry participants late last year. 

The new framework has been given effect through new requirements on authorised deposit-taking institutions (ADIs) set out in an attachment to APRA’s prudential standard for credit risk, Prudential Standard APS 220 Credit Risk Management. The attachment, Macroprudential policy credit measures, comes into effect from September 2022. 

Under the new requirements, ADIs must be operationally prepared to implement certain macroprudential policy measures, if needed. In particular, banks will need to have systems in place to limit growth in higher risk residential mortgage lending, such as loans at high debt-to-income multiples or high loan-to-valuation ratios.

The new requirements are aimed at strengthening the transparency, implementation and enforceability of future policy responses aimed at reducing financial stability risks. 

APRA has a broad range of macroprudential measures that can be used to reduce financial stability risks. For these measures to be most effective, however, banks must be able to implement them in a timely manner.

In a letter to authorised deposit-taking institutions (ADIs) today, APRA Chair Wayne Byres emphasised the importance of lenders actively managing the risks within their loan portfolios.

“In the current environment, with high household indebtedness and rising interest rates, it’s essential for banks to prudently and proactively manage risks in residential mortgage lending. APRA expects lenders to closely monitor housing lending risks to ensure that aggregate portfolio risks remain within their risk appetite and that standards for new lending remain prudent,” Mr Byres said.

The new requirements take effect from September this year.

Today’s letter to industry and revised prudential standard are available at: Proposed revisions to the credit risk management framework for authorised deposit-taking institutions.

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The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, mutuals, general insurance and reinsurance companies, life insurance, private health insurers, friendly societies, and most members of the superannuation industry. APRA currently supervises institutions holding around $9 trillion in assets for Australian depositors, policyholders and superannuation fund members.