APRA assesses macro-prudential policy settings, issues other updates

The Australian Prudential Regulation Authority (APRA) published an information paper that assesses its macro-prudential policy settings aimed at promoting stability at a systemic level. In addition, APRA seeks feedback on proposed minor amendments to the Quarterly Authorized Deposit-taking Institution Performance (QADIP) statistical publication, with the comment period ending on April 18, 2023. The authority also released its response to the consultation, published in December 2022, on the frequency of its new centralized statistical publication of key metrics for locally incorporated authorized deposit-taking institutions.

Assessment of macro-prudential policy settings

The information paper provides greater transparency on macro-prudential policy setting, in line with APRA’s new framework for macro-prudential policy which was published in 2021. Based on the assessment, APRA confirmed its view that existing policy settings remain appropriate based on the current risk outlook. The current operative settings, in effect from January 01, 2023, are a 1.0% neutral level for the countercyclical capital buffer (CCyB) and a 3.0% loan serviceability buffer. APRA instituted a neutral rate of 1.0% of risk-weighted assets for the CCyB, as part of the recent reforms to the bank capital standards. APRA’s latest stress testing indicates that this would provide sufficient capacity for banks to absorb significant economic stress and maintain the supply of credit. However, in case of economic downturn or stress, APRA may consider releasing the CCyB to provide flexibility to banks to ensure they continue to lend to support households and businesses. APRA also maintained the serviceability buffer at 3.0% above the loan rate. This buffer was increased from 2.5% to 3.0% in late 2021, in an environment of heightened risks for the financial system. The objective of the serviceability buffer was to ensure that banks make prudent lending decisions, lending to borrowers that are able to repay their loans in a range of scenarios. While lending at high debt-to-income ratios has reduced, a key concern at the time, heightened risks to serviceability remains, including the potential for further interest rate rises, high inflation and risks in the labor market. It is important that all banks maintain prudent lending in the current environment of competitive pressure on standards.

APRA expects a high degree of uncertainty in the outlook. On the one hand, there are signs of a deterioration in conditions, including falling asset prices and the potential for pockets of stress. On the other hand, lending standards are broadly sound, loan arrears remain low, and the banking system is well capitalized. Going forward, APRA will continue to closely monitor the outlook for credit growth, asset prices, lending conditions and financial resilience. Should risks to financial stability change, APRA will adjust its macro-prudential policy settings accordingly after careful consideration and consultation with other agencies on the Council of Financial Regulators or CFR.

Response to consultation on centralized publication

In its response, APRA confirmed that all submissions were supportive of the centralized statistical publication of four metrics specified on a quarterly frequency from the start of the publication for the March quarter 2023 reference period. This publication will improve the transparency of the authorized deposit-taking institution industry and provide relief for smaller non-significant financial institution (non-SFI) authorized deposit-taking institutions from disclosure obligations. It will also provide market participants access to key data points in a way that is easier to compare and analyze than standalone individual disclosures. APRA also informed that delaying the publication to the June 2023 quarter reference period would mean there is no information for non-significant financial institution (non-SFI) authorized deposit-taking institutions publicly available for March quarter 2023 reference period due to the non-SFI carve-out under the new Prudential Standard APS 330 Public Disclosure. Thus, APRA, in order to ensure continuous availability of information for non-SFIs, does not plan to delay the start of the publication. As a next step, APRA will provide the publication prototype and a mapping template to affected authorized deposit-taking institutions by June 2023.  

Consultation on quarterly statistical publication

APRA seeks feedback on proposed minor amendments to the Quarterly Authorized Deposit-taking Institution Performance (QADIP) publication. The consultation follows the implementation of the new capital framework for authorized deposit-taking institutions that came into effect on January 01, 2023, and proposes to update the capital adequacy tables in the QADIP publication to reflect the new framework. QADIP contains industry aggregate data on authorized deposit-taking institutions’ financial performance, financial position, capital adequacy, liquidity and asset quality. It does not contain any entity-level data. APRA’s release of the new capital framework was accompanied by a new Reporting Standard on Capital Adequacy (ARS 110.0). The capital adequacy tables in the QADIP publication require some minor updates to reflect the changes made to ARS 110.0. The proposed updates are intended to commence from the March 2023 reference period, for first publication in June 2023.

Related links:

• Press release on assessment of macro-prudential settings
• Information paper on macro-prudential policy settings (PDF)  
• Press release on centralized publication
• Response to consultation on centralized publication
• Press release on QADIP statistical publication
• Proposed changes to QADIP statistical publication