APRA publishes new report on financial system risks

The Australian Prudential Regulation Authority (APRA) has launched a new report on APRA’s assessment of risks and vulnerabilities facing the Australian financial system.

The new System Risk Outlook report, which will be published twice a year, increases transparency around what APRA is seeing in the domestic and international risk environments to inform its regulatory priorities.

Key insights from this first publication include:

• Risks to the Australian financial system from overseas are heightened, and the geopolitical environment is expected to remain volatile for some time. While the system is well-placed to absorb potential shocks from overseas, this resilience could be eroded if institutions are not prepared for a wide range of scenarios. APRA and the other agencies on the Council of Financial Regulators are strengthening the system’s resilience through a dedicated geopolitical risk work program.
• APRA is closely monitoring any build-up of domestic vulnerabilities, particularly in the housing market, including high household debt. While overall housing lending standards remain sound, APRA is seeing some signs of a pick-up in higher risk lending, particularly high debt-to-income borrowing by investors.
• The increasing interconnectedness of the financial system has elevated the potential for shocks in one sector to have a system-wide impact. 

Today’s report also includes a summary of the findings from Phase 1 of APRA’s inaugural system risk stress test, which was undertaken this year with the four major banks and six large superannuation funds. The key findings from Phase 1 suggest that the structural features of super funds mean that the industry acts as an important stabiliser for the system during stress but, in some cases, their actions can also amplify the negative effect of the shock on members and the system.

APRA Chair John Lonsdale said: “The insights from our System Risk Outlook report confirm that Australia’s financial system is stable, resilient and well-placed to absorb shocks, but they also emphasise why we can’t be complacent. International political and economic uncertainty remains elevated, which is why APRA is stepping up its focus on geopolitical risk.

“Domestically, housing remains a key vulnerability, given high household debt and prices continuing to rise. We are carefully monitoring these risks and ensuring banks are prepared to implement additional macroprudential tools where required to reinforce lending standards.”

“Our inaugural system risk stress test is an important addition to APRA’s stress testing regime by helping us better understand how linkages in the financial system could dampen or amplify shocks. We will shortly commence Phase 2 of the exercise, which will test the robustness of the Phase 1 findings and consider other areas of analysis,” Mr Lonsdale said.

APRA expects to publish a final detailed report of the findings of the system risk stress test, incorporating Phase 2, in mid-2026.

The full System Risk Outlook report is available at: System Risk Outlook - November 2025.