APRA published a set of frequently asked questions (FAQs) to provide authorized deposit-taking institutions with an up-to-date guidance on supervisory expectations during the period of disruption driven by COVID-19. The FAQs clarify the regulatory capital approach for loan repayment deferrals and the guidance for serviceability assessments in the Prudential Practice Guide APG 223 on residential mortgage lending. The FAQs are expected to be updated periodically over the coming months.
The FAQs set out that the regulatory capital approach of APRA specifies that, over the next six months, banks do not need to treat the period of the repayment deferral as a period of arrears for capital purposes. As per APRA, the regulatory capital approach can be applied to a broad class of otherwise performing loans on which authorized deposit-taking institutions grant repayments deferrals. This includes loans that are less than 90 days past due and not impaired at the time deferral was granted. Authorized deposit-taking institutions should publicly disclose the nature and terms of any repayment deferrals given to a broad class of loans and the volume of loans to which they are applied. These institutions should also closely monitor the portfolio credit risk of this cohort of loans, and are required to report to APRA information on the volume and risk profile of this segment of the portfolio.
Keywords: Asia Pacific, Australia, Banking, Residential Mortgage Lending, Credit Risk, COVID-19, FAQ, Regulatory Capital, Loan Moratorium, Basel, APRA
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