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APRA maintains current macroprudential policy settings

The Australian Prudential Regulation Authority (APRA) has published its annual update on macroprudential policy outlining the reasons why existing policy settings remain appropriate.

In determining to keep its current capital- and credit-based macroprudential settings in place, APRA took account of ongoing cost-of-living pressures, the domestic and global economic outlook, particularly the expected easing in labour market conditions, and the potential for higher borrowing costs. APRA also considered the level of capital on bank balance sheets and the expected performance of their lending assets.

As a result of these considerations:

  • the countercyclical capital buffer will remain at 1.0 per cent of risk weighted assets so that banks have an additional capital buffer for stress situations;
  • the mortgage serviceability buffer will be kept at 3 percentage points to maintain prudent lending standards. It provides an important contingency for new borrowers facing the risks of weaker conditions in the labour market, persistently high inflation and the potential for further increases in borrowing rates; and  
  • capital distribution or lending limits have not been applied given the improvement in new loan quality and the current composition of credit in the economy.

APRA Chair John Lonsdale said: “Macroprudential policy is an important part of APRA’s toolkit to maintain the stability and resilience of the financial system. By keeping current settings steady, APRA aims to keep Australia’s banks resilient while continuing to encourage them to apply high lending standards.

“APRA’s macroprudential settings have helped to mitigate risks to the financial system. The mortgage serviceability buffer has proved to be effective over the past 18 months; housing loan performance has remained sound while households have had to contend with cost-of-living pressures, including the increase in borrowing costs. The countercyclical capital buffer continues to put Australia’s banks in a stronger position to serve the needs of our economy, including in times of stress.

“While we believe these settings remain the right ones for the current environment, circumstances can sometimes change rapidly, especially during this current period of domestic and global economic uncertainty and geopolitical tensions. Consequently, it’s important to note that APRA’s macroprudential settings are dynamic and can be adjusted to address emerging risks when they arise,” Mr Lonsdale said.  

Today’s information paper is available on APRA’s website at: Update on Macroprudential Settings – December 2023.

Macroprudential policy

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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.