APRA is proposing to update its prudential standard on credit risk management requirements for authorized deposit-taking institutions. To this end, APRA released a discussion paper proposing changes to the Prudential Standard APS 220 Credit Quality (APS 220), which requires authorized deposit-taking institutions to control credit risk by adopting prudent credit risk management policies and procedures. APRA is proposing to rename APS 220 as Prudential Standard APS 220 Credit Risk Management (the revised APS 220) to better describe the purpose of the revised standard. APRA intends to implement the proposed reforms to APS 220 from July 01, 2020.
The discussion paper outlines the proposals of APRA in the following areas:
- Credit risk management—The revised APS 220 broadens coverage to include credit standards and the ongoing monitoring and management of an authorized deposit-taking institution’s credit portfolio in more detail. It also incorporates enhanced Board oversight of credit risk and the need for authorized deposit-taking institutions to maintain prudent credit risk practices over the credit life-cycle.
- Credit standards—The revised APS 220 incorporates outcomes from APRA's recent supervisory focus on credit standards and addresses recommendations from the Final Report of the Royal Commission in relation to the valuation of land taken as collateral by the authorized deposit-taking institutions.
- Asset classification and provisioning—The revised APS 220 provides a more consistent classification of credit exposures, by aligning recent accounting standard changes on loan provisioning requirements (under AASB 9), as well as other guidance on credit-related matters of BCBS.
Since 2006, when APS 220 was substantially updated, credit risk practices have significantly evolved, with the emergence of more sophisticated analytical techniques and information systems. Consequently, APRA is planning to modernize the standard. An accompanying prudential practice guide and revised reporting standards will be released for consultation later in 2019. APRA expects that the final prudential standard, prudential practice guide, and reporting standards will be released by the end of 2019.
Effective Date: July 01, 2020 (Proposed)
Keywords: Asia Pacific, Australia, Banking, Credit Risk Management, APS 220, Credit Risk, AASB 9, IFRS 9, APRA
Previous ArticleIMF Publishes Report on 2019 Article IV Consultation with Sweden
Next ArticleIOSCO Publishes Annual Work Program for 2019
FED finalized a rule that updates capital planning requirements to reflect the new framework from 2019 that sorts large banks into categories, with requirements that are tailored to the risks of each category.
ECB published results of the quarterly lending survey conducted on 143 banks in the euro area.
ESAs published the final draft implementing technical standards on reporting of intra-group transactions and risk concentration of financial conglomerates subject to the supplementary supervision in EU.
EBA published the annual report on asset encumbrance of banks in EU.
MAS revised the guidelines that address technology and cyber risks of financial institutions, in an environment of growing use of cloud technologies, application programming interfaces, and rapid software development.
FED updated the reporting form and instructions for the FR Y-9C report on consolidated financial statements for holding companies.
EBA issued a consultation paper on the guidelines on monitoring of the threshold and other procedural aspects of the establishment of intermediate EU parent undertakings, or IPUs, as laid down in the Capital Requirements Directive.
EC published Regulation 2021/25 that addresses amendments related to the financial reporting consequences of replacement of the existing interest rate benchmarks with alternative reference rates.
BIS published a bulletin, or a note, that examines the cyber threat landscape in the context of the pandemic and discusses policies to reduce risks to financial stability.
HM Treasury, also known as HMT, has updated the table containing the list of the equivalence decisions that came into effect in UK at the end of the transition period of its withdrawal from EU.