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    APRA Publishes FAQ on Credit Risk Capital Treatment of Certain Loans

    March 23, 2021

    APRA updated a frequently asked question (FAQ) conveying its expectations for the authorized deposit-taking institutions on the credit risk capital treatment of loans covered by the Coronavirus SME Guarantee Scheme and the SME Recovery Loan Scheme. The Coronavirus SME Guarantee Scheme and the SME Recovery Loan Scheme may be regarded as an eligible guarantee by the Australian government for risk-weighting purposes. For both secured and unsecured lending, the uncovered portion of the exposure must be risk-weighted according to the risk-weight applicable to the original counterparty.

    In relation to the covered portion of the exposure, authorized deposit-taking institutions utilizing the 

    • standardized approach may apply a risk-weight appropriate to the Australian government, in accordance with Attachment A to the prudential standard APS 112 on the standardized approach to credit risk.
    • internal ratings-based approach may apply a risk-weight derived by using the relevant substitution approach in accordance with the requirements specified in the prudential standard APS 113 on the internal ratings-based approach to credit risk.

     

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    Keywords: Asia Pacific, Australia, Banking, Credit Risk, FAQ, Internal Ratings Based Approach, Standardized Approach, APS 113, APS 112, Loan Guarantee, COVID-19, APS 220, Regulatory Capital, Basel, APRA

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