Featured Product

    IMF Publishes Reports on 2019 Article IV Consultation with Australia

    March 05, 2020

    IMF published staff report and selected issues report under the 2019 Article IV consultation with Australia. The IMF Directors agreed that the current macro-prudential policy stance remains appropriate and encouraged the authorities to continue improving the readiness of their macro-prudential toolkit. The Directors highlighted that Australian banks remain adequately capitalized and profitable. They supported the plans of authorities to further enhance the loss-absorbing capacity of banks. The Directors emphasized that reform priorities should include implementing the recommendations of APRA Capability Review and reinforcing the financial crisis management arrangements, as highlighted in the 2018 Financial Sector Assessment Program (FSAP).

    The staff report highlights that Australian banks are adequately capitalized and profitable. However, the banks are vulnerable to high household debt, exposed to residential mortgage lending, and dependent on wholesale funding. Major banks’ common equity tier 1 capital ratio averaged 11% in September 2019, above the 10.5% "unquestionably strong" threshold required by January 01, 2020. The capital framework for banks has been further strengthened. APRA announced, in July 2019, the requirement for domestic systemically-important banks to strengthen their total loss-absorbing capacity by lifting their total capital by 3 percentage points of risk-weighted assets by January 01, 2024. With this, the four major banks in the country will be expected to maintain a total capital ratio of nearly 17.5%. APRA has also proposed revisions to the capital framework for banks to ensure that the capital held against assets is more sensitive to their riskiness and aims to reduce the concentration of residential mortgages on bank balance sheets. Also indicated is the likelihood of setting a countercyclical capital buffer at non-zero default level. 

    Macro-prudential policy, working in tandem with stricter enforcement of prudential regulations, has been effective in reducing riskier mortgage loans. The tightening of macro-prudential policies over 2014-17 helped address high-risk mortgage lending. The assessment suggests that APRA should continue to expand and improve the readiness of the macro-prudential toolkit to allow for more flexible and targeted responses to persistent and new systemic risks. Staff concurs with the recommendation of the APRA Capability Review to further strengthen transparency and public communication on macro-prudential policy. Continued implementation of the recommendations of the 2018 FSAP should remain a priority. Banking and insurance supervision is being strengthened through new enforcement, governance, and risk management approaches for APRA and by the adoption of a supervisory model incorporating stress testing. Strengthening systemic risk oversight of the financial sector and reinforcing financial crisis management arrangements should remain priorities. The authorities should complete the resolution policy framework, expedite the development of bank-specific resolution plans, and introduce statutory powers for bail-in. 

    Furthermore, important challenges remain in energy and climate change policies. Uncertainty around the climate change mitigation policies in Australia may impact investment decisions and sustainable growth. Developing and implementing an ambitious, national, integrated approach to climate change policy, including long-term goals and strategies, and clarifying how existing and new instruments can be employed to meet the Paris Agreement goals, would help reduce policy uncertainty and catalyze environmentally friendly investment in the energy sector and the broader economy. 

     

    Related Links

    Keywords: Asia Pacific, Australia, Banking, Insurance, Article IV, FSAP, TLAC, Macro-Prudential Policy, NPLs, CCyB, Climate Change Risk, ESG, Governance, Systemic Risk, Resolution Plan, APRA, IMF

    Featured Experts
    Related Articles
    News

    OSFI Discusses Benchmark Rate Transition, Sets Out Work Priorities

    The Office of the Superintendent of Financial Institutions (OSFI) published the strategic plan for 2022-2025 and the departmental plan for 2022-23.

    May 17, 2022 WebPage Regulatory News
    News

    EBA Proposes Standards to Support Secondary NPL Markets

    The European Banking Authority (EBA) is consulting, until August 31, 2022, on the draft implementing technical standards specifying requirements for the information that sellers of non-performing loans (NPLs) shall provide to prospective buyers.

    May 17, 2022 WebPage Regulatory News
    News

    EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution

    The European Council and the Parliament reached an agreement on the revised Directive on security of network and information systems (NIS2 Directive).

    May 13, 2022 WebPage Regulatory News
    News

    EBA Issues Standards for Crowdfunding Service Providers Under ECSPR

    The European Banking Authority (EBA) published the final draft regulatory technical standards specifying information that crowdfunding service providers shall provide to investors on the calculation of credit scores and prices of crowdfunding offers.

    May 13, 2022 WebPage Regulatory News
    News

    EU to Amend Credit Risk Adjustment Rules; ESAs Submit Queries on SFDR

    The European Council published a draft Commission Delegated Regulation to amend the regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.

    May 13, 2022 WebPage Regulatory News
    News

    EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution

    The European Securities and Markets Authority (ESMA) published a paper that examines the systemic risk posed by increasing use of cloud services, along with the potential policy options to mitigate this risk.

    May 12, 2022 WebPage Regulatory News
    News

    MAS Amends Notice 635 and Issues Second Proposal on Green Taxonomy

    The Monetary Authority of Singapore (MAS) published amendments to Notice 635, which sets out requirements that a bank in Singapore has to comply with when granting an unsecured non-card credit facility to individuals.

    May 12, 2022 WebPage Regulatory News
    News

    EC Consults on PSD2 and Open Finance; EU Reaches Agreement on DORA

    The European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.

    May 11, 2022 WebPage Regulatory News
    News

    EC Mandates ESAs to Propose Amendments to SFDR Technical Standards

    The European Commission (EC) has issued two letters mandating the European Supervisory Authorities (ESAs) to jointly propose amendments to the regulatory technical standards under Sustainable Finance Disclosure Regulation or SFDR.

    May 11, 2022 WebPage Regulatory News
    News

    EBA Examines Supervisory Practices, Issues Deposits Reporting Template

    The European Banking Authority (EBA) published its annual report on convergence of supervisory practices for 2021. Additionally, following a request from the European Commission (EC),

    May 11, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8196