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    APRA Finalizes Credit Risk Management Standard and Associated Changes

    June 14, 2022

    The Australian Prudential Regulation Authority (APRA) finalized amendments its macro-prudential policy framework, along with the associated revisions to the prudential standard on credit risk management (APS 220). It also decided to update its Quarterly Authorized Deposit-taking Institution Performance (QADIP) and Quarterly Authorized Deposit-taking Institution Property Exposures (QPEX) statistical publications. APRA also published its response to the proposed changes to the quarterly statistical publications, along with the mock-up tables with updated explanatory notes and the updated QADIP and QPEX glossaries.

    The new macro-prudential policy framework has been given effect through new requirements on authorized deposit-taking institutions set out in an attachment (Attachment C) to the prudential standard for credit risk management (APS 220). The Attachment C includes a set of credit-based macroprudential measures that APRA could use, if needed, to address risks to financial stability. The Attachment applies to credit exposures in Australia where the majority of the collateral value securing the loan is located in Australia, or for unsecured loans where the ultimate risk of the exposure is located in Australia. Banks will need to have systems in place to limit growth in higher risk residential mortgage lending, such as loans at high debt-to-income multiples or high loan-to-valuation ratios. APRA may require institutions to publicly disclose the level of lending against any limits specified by APRA, for the period in which the limits apply. Institutions will be required to meet the new requirements from September 01, 2022. To ensure appropriate alignment with the final Attachment C to APS 220, APRA is also making corresponding amendments to relevant guidance and reporting standards:

    • APRA updated prudential practice guide on residential mortgage lending (APG 223) to align with new requirements for a prudent setting of the serviceability buffer.
    • APRA updated cross-references across relevant reporting standards, including reporting standard on residential mortgage lending (ARS 223).

    Changes to Quarterly Statistical Publications were proposed in February 2022, with the aim to accommodate the new APS 220, notably to continue the publication of data regarding non-performing loans. APRA received two submissions: one confidential submission from an authorized deposit-taking institution and one non-confidential submission from the Australian Banking Association (ABA submission). The ABA advocated for postponing the first publication until later this year, giving the authorized deposit-taking institutions sufficient time to identify and correct any underlying data issues in the new reporting form. However, APRA intends to release the quarterly statistical publications on schedule, as no significant data issues have been identified in the first quarterly submissions and the data on asset quality is key to monitoring the health of the banking system. In the given situation, APRA views the risk of delaying the publication of key data series as greater than the risk of potential data quality concerns. Thus, APRA will proceed with the proposed updates to QADIP and QPEX, with the updated statistical publications slated to be first released on June 14, 2022, for the March 2022 reference period.

     

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    Keywords: Asia Pacific, Australia, Banking, Credit Risk, APS 220, Lending, Reporting, ARS 223, Macro-Prudential Policy, RRE, QADIP, QPEX, Statistical Reporting, APRA

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