APRA Papers Examine Measures on CCyB and Mortgage Lending Standards
APRA published information papers on the indicators that contributed to the countercyclical capital buffer (CCyB) decision and on the review of the prudential measures for residential mortgage lending risks. APRA also announced its decision to keep the CCyB for authorized deposit-taking institutions on hold at zero percent. APRA reviews the buffer quarterly and it has been set at zero percent of risk-weighted assets since it was introduced in 2016.
In the annual information paper on CCyB, APRA outlined the core economic indicators that contributed to the decision, including the following:
- Moderate growth in housing and business credit over 2018
- A decline in higher-risk categories of new housing lending, including interest-only loans, investor loans, and lending at high loan-to-value ratio (LVR) levels
- Continued strengthening in authorized deposit-taking institutions’ capital positions as they move to implement the requirements of “unquestionably strong” capital ratios
Also influencing APRA’s judgment that a zero percent CCyB setting remained appropriate has been the impact of measures that APRA has taken since 2014 to address systemic risks related to residential mortgage lending standards. In a separate but related information paper, APRA detailed the objectives for its interventions in the residential mortgage lending market in recent years, which were aimed at reinforcing sound mortgage lending standards and increasing the resilience of the banking sector in the face of heightened risks. The following are the key findings in the paper:
- Authorized deposit-taking institutions have lifted the quality of their lending standards, with improvements in policies and practices across the industry.
- During the period in which the adjustments were occurring (2015-2018), the growth in total credit for housing was stable.
- The composition of credit for housing, however, changed notably: the rate of growth of lending to investors fell considerably and the proportion of loans written on an interest only basis roughly halved (although, given the high starting point, one in five loans is still made on an interest-only basis).
- Although APRA did not introduce measures to specifically target lending with high LVR, there has been a moderation in high LVR lending in recent years.
- Initially, authorized deposit-taking institutions sought to adjust lending practices without resorting to interest rate increases. Ultimately, however, interest rates were used to help manage demand for credit. The pricing differential that has emerged between owner-occupied and investor loans, and between amortizing and interest-only loans, is often seen to be a product of the APRA benchmarks, but is also reflective of changes to capital requirements that will likely see differential pricing for higher risk lending continue into the future.
In conjunction with the other agencies on the Council of Financial Regulators, APRA will continue to closely monitor economic conditions and will adjust the CCyB if future circumstances warrant it. Separately, APRA is also considering setting the buffer at a non-zero default rate as part of its ongoing review of the authorized deposit-taking institutions capital framework.
Related Links
Keywords: Asia Pacific, Australia, Banking, CCyB, Residential Mortgage Lending, Systemic Risk, LVR, APRA
Previous Article
CPMI-IOSCO Conclude that Switzerland has Generally Implemented PFMIRelated Articles
|
News
FDIC Consults on Approach to Resolution Planning for IDIsFDIC approved an Advance Notice of Proposed Rulemaking (ANPR) and is seeking comment on ways to tailor and improve its rule requiring certain insured depository institutions (IDIs) to submit resolution plans.
April 22, 2019
WebPage
Regulatory News
|
|
News
HKMA Decides to Maintain Countercyclical Capital Buffer at 2.5%HKMA announced that, in accordance with the Banking (Capital) Rules, the countercyclical capital buffer (CCyB) ratio for Hong Kong remains at 2.5%.
April 16, 2019
WebPage
Regulatory News
|
|
News
EP Approves Agreement on Package of CRD 5, CRR 2, BRRD 2, and SRMR 2The European Parliament (EP) approved the final agreement on a package of reforms proposed by EC to strengthen the resilience and resolvability of European banks.
April 16, 2019
WebPage
Regulatory News
|
|
News
EP Resolution on Proposal for Sovereign Bond Backed SecuritiesThe European Parliament (EP) published adopted text on the proposal for a regulation of the European Parliament and of the Council on sovereign bond-backed securities (SBBS).
April 16, 2019
WebPage
Regulatory News
|
|
News
PRA Seeks Input and Issues Specifications for Insurance Stress TestsPRA announced that it will conduct an insurance stress test for the largest regulated life and general insurers from July to September 2019.
April 15, 2019
WebPage
Regulatory News
|
|
News
PRA Finalizes Policy on Approach to Managing Climate Change RisksPRA published the policy statement PS11/19, which contains final supervisory statement (SS3/19) on enhancing banks’ and insurers’ approaches to managing the financial risks from climate change (Appendix).
April 15, 2019
WebPage
Regulatory News
|
|
News
EBA Single Rulebook Q&A: First Update for April 2019EBA published answers to nine questions under the Single Rulebook question and answer (Q&A) updates for this week.
April 12, 2019
WebPage
Regulatory News
|
|
News
EIOPA Statement on Application of Proportionality in SCR SupervisionEIOPA published a supervisory statement on the application of proportionality principle in the supervision of the Solvency Capital Requirement (SCR) calculated in accordance with the standard formula.
April 11, 2019
WebPage
Regulatory News
|
|
News
FED Updates Form and Supplemental Instructions for FR Y-9C ReportingFED updated the form and supplemental instructions for FR Y-9C reporting. FR Y-9C is used to collect data from domestic bank holding companies, savings and loan holding companies, U.S intermediate holding companies, and securities holding companies with total consolidated assets of USD 3 billion or more.
April 11, 2019
WebPage
Regulatory News
|
|
News
OSFI Finalizes Guidelines on Liquidity Adequacy and NSFR DisclosuresOSFI published the final Liquidity Adequacy Requirements (LAR) guideline and the net stable funding ratio (NSFR) disclosure requirements guideline.
April 11, 2019
WebPage
Regulatory News
|
