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Update on Macroprudential Settings – December 2023



APRA has decided to maintain its existing macroprudential policy settings. The mortgage serviceability buffer will remain at 3 percentage points, and the countercyclical capital buffer will stay at 1 per cent of risk-weighted assets. No other macroprudential policies are required to be introduced at this juncture.

These settings are under regular review and APRA will adjust its macroprudential policies to respond to emerging risks from changes in economic and financial conditions or to support the economy as required. 

Policy considerations


Given the uncertainty regarding the economic outlook, ongoing geopolitical tensions, and cost of living pressures, APRA is confirming that the 3 percentage point serviceability buffer remains prudent. The buffer provides an important contingency over the life of the loan for unforeseen changes in a borrower’s financial circumstances.

The current level of the buffer has proven to be effective in improving the quality of lending. In particular, given the rapid increase in borrowing costs over the past 18 months, loan performance has remained sound; arrears rates and non-performing loan rates have increased only marginally and remain low (Chart 4.2). While some borrowers have been insulated from higher mortgage rates because they have been on low fixed-rate mortgages, most households who have rolled off to higher variable rate loans have continued to service their mortgages, in part because of the buffer applied to their loans at application.

Households have continued to service their mortgages despite cost of living pressures because of strong labour market conditions and the high liquid buffers they accumulated during the peak of the COVID pandemic. Nevertheless, households are experiencing financial pressures. Some households have reduced discretionary spending and used their liquid buffers to deal with higher mortgage repayments. Conditions in the labour market are easing, and employers have so far tended to reduce hours rather than the number of employees. Ongoing cost of living pressures, expected lower household income growth in the near term, and the potential for higher borrowing costs have supported the need to keep the mortgage serviceability buffer at 3 percentage points so that new borrowers have greater capacity to continue to service their loans should their financial circumstances deteriorate.

The serviceability buffer and higher borrowing rates have also contributed to a marked improvement in the average quality of new loans. This improvement has occurred without unduly constraining housing credit, which has slowed to around its long-term average rate of growth (Charts 1.1, 3.1, 3.2). Notwithstanding the slowing in credit, housing prices have returned to their peak of early 2022 (Chart 2.1). The increase in housing prices has been partially driven by the limited ability for supply to respond to the extra demand from stronger population growth. APRA will be monitoring the dynamic between housing prices and housing credit very closely.

Housing loan refinancing activity has been at record levels as borrowers more actively seek better deals for their mortgages. Banks have also been offering large discounts to retain customers. Some borrowers, however, have been unable to refinance their mortgage. While a small share of borrowers have been unable to satisfy serviceability criteria, others have been unable to refinance because of changes in personal financial circumstances and high loan-to-valuation ratios, among other reasons. Banks are able to apply exceptions to the serviceability buffer when appropriate, including for borrowers who are seeking to refinance, as long as the number of exceptions remain within an Authorised Deposit-taking Institution’s (ADI) risk appetite.

APRA is maintaining the counter-cyclical capital buffer (CCyB) at 1 per cent of risk weighted assets. Credit growth has stabilised around longer-term rates and there is no evidence to date of stresses emerging that would compromise banks’ ability to supply credit reliably to the economy. Recent bank stress tests also have demonstrated the resilience of banks to a severe stress and APRA has assessed that building further resilience in the system through raising the CCyB is not required at this point in the cycle (Chart 4.1).

Current conditions do not warrant the use of other macroprudential policy tools. In particular, there is not a strong case to impose lending limits given the recent improvement in the quality of lending and the rates of growth in investor and owner-occupier housing lending. Furthermore, asset prices do not appear to be driven by factors such as speculative activity or higher leverage, which might otherwise require different policy settings to protect the financial system. 

Broader financial stability considerations


The persistence of inflation is creating more uncertainty about the economic outlook. Although goods price inflation has abated, services price inflation remains high and there is some uncertainty as to how long this will persist given growing labour costs, which are being exacerbated by negative labour productivity growth. In addition, there are risks of higher inflation from an increase in energy prices as a result of geopolitical tensions. In this scenario, there is the potential for further increases in borrowing rates, which would add to existing financial strains on households and businesses.

Some businesses are also experiencing financial pressure. Higher labour, material and interest costs and slowing demand have also contributed to a slowing in business credit and a rise in business insolvencies, particularly in the construction sector (Chart 1.2). Until recently, strong demand had enabled firms to pass on their higher input costs to prices. As demand slows, businesses will have less scope to raise prices in response to higher operating costs, which represents a risk to business profitability. Commercial real estate valuations have been falling in the office and retail segments due to cyclical and structural factors, such as weaker retail demand and working from home arrangements (see chart 2.2). However, current bank exposures to commercial real estate are low and do not pose a significant risk to the banking system.

Uncertainty in relation to the global policy and economic outlook has translated into more financial market volatility, particularly in longer-term sovereign bond yields. The restrictive monetary policy stance in advanced economies is expected to last longer than had previously been expected, reflecting strength in labour markets and the persistence in high inflation. The increase in longer-term interest rates will also increase the cost of servicing already high levels of government debt and could result in some tightening of fiscal policy in some overseas economies, which will slow global growth further.  



The objective of macroprudential policy is to mitigate risks to the financial system to ensure the financial system can continue to supply the credit and payment services required for the economy to grow at a stable and sustainable rate. APRA published a framework for macroprudential policy in 2021, which detailed the objectives, toolkit and implementation process.

APRA uses a broad range of economic and financial indicators and qualitative information to monitor emerging risks to financial stability. While risks to the financial system are the primary consideration for changes in macroprudential policy, APRA also considers the effect its macroprudential policy settings have on the competition and efficiency of the financial system.  

APRA has responsibility to set macroprudential policy in Australia. In considering its settings, APRA consulted with the Council of Financial Regulators (CFR) at its September 2023 meeting. APRA regularly reviews its macroprudential settings and will continue to consult with the CFR. 



APRA tracks a broad range of indicators to monitor risks to the financial system. This includes four main indicators that provide a view of emerging systemic risks: credit growth and leverage; growth in asset prices; quality of lending; and financial resilience. Trends for these select indicators are shown in the charts below.  

Credit Growth

Chart 1.1

Housing Credit Growth
Quarterly annualised growth

Chart 1.2

Business Credit Growth*
Quarterly annualised growth

A line chart of housing credit quarterly annualised growth rates. Total, owner occupier and investor credit growth have declined since early 2022 and stabilised in 2023. Total housing credit growth is around 4 per cent in the September quarter 2023.
Source: RBA, APRA.
A line chart of business credit quarterly annualised growth rates. Business credit growth has fallen from around 15 per cent in 2022 to 8 per cent in September quarter 2023.
Source: RBA, APRA *Excluding financial businesses.

Asset Prices

Chart 2.1

National Housing Price Growth
Seasonally adjusted

Chart 2.2

Commercial property values
Index (Sep-13=100)

A line chart of seasonally adjusted annual housing price growth rates with a bar chart of monthly housing price growth rates. Monthly housing price growth was mostly negative in 2022 and turned positive in 2023. The pace of monthly housing price growth has fallen in recent months from around 1.4 per cent in June 2023 to 0.8 per cent in October 2023.
Source: CoreLogic, APRA.
A line chart of commercial property index values, with office, industrial warehouses and retail regional centres. All segments have falling values over 2023.
Source: JLL, APRA.

Quality of New Housing Lending

Chart 3.1

DTI ≥ 6x, share of new lending

Chart 3.2

LVR ≥ 90%, share of new lending

A line chart of debt-to-income ratios greater than or equal to 6 times, as a share of new housing lending through time. The share of total lending has fallen from around 24 per cent in December 2021 to 6 per cent in June 2023.
Source: APRA
A line chart of loan-to-value ratios greater than 90 per cent, as a share of new housing lending through time.  High LVR shares of total, owner-occupier, investor lending have fallen since early 2021. The share of total lending has fallen from around 11 per cent in December 2020 to 5 per cent in June 2023.
Source: APRA.

Financial Resilience

Chart 4.1

Capital base as a percentage of 
total risk-weighted assets

Chart 4.2

Mortgage Arrears

A line chart of total, tier 1 and CET 1 capital ratios, as a share of total risk weighted assets, through time. All ratios rose from 2019 to 2021 and have fallen since 2021. There is a series break on 1 January 2023 due to the capital framework reforms.
Source: APRA.
A line chart of arrears as a share of total housing loans outstanding, through time. Non-performing loans and 30 to 89 days past due have fallen since early 2020. They have increased marginally since mid 2022 but remain lower than 2019 levels.
Source: APRA, series break is due to a definitional change.