APRA Issues Guidance for Capital Management by Banks and Insurers
APRA, in a letter to all authorized deposit-taking institutions and insurers, provides guidance on managing capital during the period of significant disruption caused by COVID-19. In this letter, APRA lays down its expectations from authorized deposit-taking institutions, general insurers, life companies, and private health insurers to limit discretionary capital distributions in the months ahead, including deferrals or prudent reductions in dividends. In another letter to applicants for new licenses, APRA advised that it is temporarily suspending issuing new licenses for at least six months, in response to the economic uncertainty amid COVID-19 outbreak.
During at least the next couple of months, APRA expects that all authorized deposit-taking institutions and insurers will take a forward-looking view on the need to conserve capital and use capacity to support the economy and use stress testing to inform these views while giving due consideration to plausible downside scenarios. APRA also expects these entities to initiate prudent capital management actions, on a preemptive basis, to ensure that they maintain the confidence and capacity to continue to lend and support their customers. APRA expects that authorized deposit-taking institutions and insurers will seriously consider deferring decisions on the appropriate level of dividends until the outlook is clearer. However, where a Board is confident that they are able to approve a dividend before this, on the basis of robust stress testing results that have been discussed with APRA, this should nevertheless be at a materially reduced level. Dividend payments should be offset to the extent possible through the use of dividend reinvestment plans and other capital management initiatives. APRA also expects that Boards will appropriately limit executive cash bonuses and be mindful of the current challenging environment.
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Keywords: Asia Pacific, Australia, Banking, Insurance, Superannuation, COVID-19, Dividend Distribution, Capital Buffer, Stress Testing, License Applications, Regulatory Capital, APRA
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