The Australian Prudential Regulation Authority (APRA) has confirmed it will keep its macroprudential policy settings on hold following its latest quarterly assessment of domestic and international economic conditions.
In reaching a decision to retain its current settings, APRA says it took into account an uncertain interest rate and economic outlook, with high levels of household debt and inflation still above the Reserve Bank of Australia’s target range, as well as ongoing geopolitical instability.
Balancing these risks, APRA noted that the quality of new housing lending remains sound, and while arrears rates on mortgage and business lending portfolios continue to rise slowly, they remain below Covid peaks.
As a result of these considerations:
- the countercyclical capital buffer will remain at 1.0 per cent of risk weighted assets;
- the mortgage serviceability buffer will be kept at 3 percentage points; and
- lending limits have not been applied.
Changes to banks’ liquidity and capital requirements
APRA has published finalised APS 210 and Prudential Practice Guide APG 210 Liquidity relating to banks’ liquidity and capital requirements designed to strengthen the ability of banks to respond to a future stress event.
APRA will proceed with two reforms:
- Banks subject to the Minimum Liquidity Holdings (MLH) regime for calculating their liquidity requirements will be required to adjust the value of their liquid assets regularly for movements in market prices; and
- All banks must be operationally ready to provide certain key information regarding their financial position when requesting exceptional liquidity assistance (ELA) from the Reserve Bank of Australia.
These two measures will come into effect from 1 July 2025.
However, APRA will defer consideration of a proposal to phase-out bank debt securities as liquid assets for MLH banks until APRA’s planned broader review of liquidity risk, which is due to commence next year.
In the meantime, APRA expects MLH banks to take steps to improve the diversification of their liquidity portfolios in line with APRA’s existing requirements and guidance. This should be reflected in banks’ usual annual review of liquid assets under Prudential Standard APS 210 Liquidity (APS 210).
APRA requests these annual reviews be provided to APRA when approved by the board and by no later than 1 July 2025. Banks with material concentrations of bank debt securities should expect heightened supervisory attention consistent with APRA’s existing supervisory framework.
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Author: David Jacobson
Principal, Bright Corporate Law
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About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.
