The Australian Prudential Regulation Authority (APRA) has released the finalised prudential practice guides (PPGs 110, 112 and 113) that accompany the final capital adequacy and credit risk capital requirements for authorised deposit-taking institutions.
The new capital framework aims to strengthen the financial resilience of the banking industry by embedding the industry’s unquestionably strong levels of capital, with higher capital buffers providing greater flexibility for periods of stress. The relevant standards will become effective on 1 January 2023.
APRA expects an accountable person from each ADI to attest by December 2022 that their ADI will be compliant with the ADI capital framework.
APG 110 sets out an expectation that a prudent ADI would ensure it maintains an adequate management target above the top of regulatory capital buffers in stable operating conditions, to allow for business growth, volatility in risk-weighted assets (RWA), profit and capital surplus, and dividend policy. The management target would also be sufficient to withstand a severe but plausible downturn while remaining above the ADI’s PCR.
APRA has updated APG 110 in line with the final changes to the significant financial institution (SFI) definition.
APRA has also released an updated version of Prudential Standard APS 113 Capital Adequacy: Internal Ratings-based Approach to Credit Risk (APS 113) with minor amendments resulting from the consultation on the guidance.
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Author: David Jacobson
Principal, Bright Corporate Law
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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.
