APRA Finalizes Prudential Standard for Credit Risk Management of Banks
APRA updated the prudential standard on credit risk management requirements (APS 220) for authorized deposit-taking institutions, post a public consultation. APRA also published its response to the submissions received on the consultation for APS 220. The revised APS 220 will come into effect from January 01, 2021. In addition, APRA released, for consultation, a draft Prudential Practice Guide on credit risk management (APG 220). The draft guide is intended to complement the prudential standard and offers guidance on APRA’s view of sound practices in the area of credit risk management for authorized deposit-taking institutions. The consultation on APG 220 closes on March 12, 2020.
Overall, APS 220 sets out the requirements for an authorized deposit-taking institution to implement a credit risk management framework that is appropriate to its size, business mix, and complexity. As flagged, APRA has renamed the standard APS 220 Credit Risk Management. APG 220 requires an authorized deposit-taking institution to maintain:
- An appropriate credit risk appetite statement and credit risk management strategy that reflects its credit risk appetite and credit risk profile
- Prudent policies and processes to identify, measure, monitor, report, and control or mitigate credit risk over the full credit life-cycle
- Sound credit assessment and approval criteria, including for the comprehensive assessment of a borrower’s repayment capacity
- An appropriate system for the ongoing administration of its credit portfolio
- Prudent policies and processes for the early identification and management of problem exposures, including non-performing and restructured exposures and other transactions
- Appropriate credit risk practices, including an effective system of internal control, to consistently determine adequate provisions in accordance with the stated policies and processes of an authorized deposit-taking institution and the Australian Accounting Standards
In a response to the submissions paper, APRA confirmed that the finalized prudential standard has broadened its coverage to include credit standards, consistent with recent update of the Australian Securities and Investments Commission to its responsible lending guidance, and the ongoing monitoring and management of the credit portfolio of an authorized institution 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 entire credit life-cycle. APRA has amended APS 220 to require independent valuation of collateral, for the valuation to take into account the time taken for realization of collateral and, to the extent possible, the likelihood of external events such as drought and flood. The revised APS 220 also provides a more consistent classification of credit exposures, by aligning recent accounting standard changes on loan provisioning requirements as well as other guidance on credit related matters of the BCBS.
Related Links
Comment Due Date: March 12, 2020 (APG)
Effective Date: January 01, 2021 (APS)
Keywords: Asia Pacific, Australia, Banking, Credit Risk, Proportionality, APS 220, APG 220, IFRS 9, AASB 9, Outsourcing, APRA
Featured Experts

María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer

Masha Muzyka
CECL, IFRS 9, and IFRS 17 expert; credit risk and insurance risk specialist; strategic planning and credit analytics solutions consultant

Dieter Van der Stock
IFRS subject matter expert; LDTI subject matter expert; accounting authority; risk management specialist
Previous Article
IMF Publishes Technical Notes Under FSAP Assessment on MaltaRelated Articles
EBA Proposes Standards for IRRBB Reporting Under Basel Framework
The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.
FED Issues Further Details on Pilot Climate Scenario Analysis Exercise
The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.
US Agencies Issue Several Regulatory and Reporting Updates
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
ECB Issues Multiple Reports and Regulatory Updates for Banks
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
CBIRC Revises Measures on Corporate Governance Supervision
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
HKMA Publications Address Sustainability Issues in Financial Sector
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
EBA Updates Address Basel and NPL Requirements for Banks
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite
The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.