The Australian Prudential Regulatory Authority (APRA) recently revealed its response to the first round of consultations on proposed changes to the Funding Framework for Approved Depository Institutions (ADI).
The proposed amendments include the relaxation of capital requirements for low-risk home loans, principal and insured interests by the owner; and started from Basel III – a banking regulatory framework designed to promote financial stability.
ADIs that already meet the "undoubtedly strong" capital targets announced by APRA in July 2017 should not need to raise additional capital to meet these new measures. Instead, the measures should enhance the security and stability of the ADI sector by better aligning the capital requirements with the underlying risks, particularly with respect to residential mortgages.
The independent statutory authority has received 18 submissions from industry to the proposed revisions and issued a response, as well as draft three updated prudential standards, such as APS 112 Capital adequacy: standardized approach to credit risk; residential mortgages taken from APS 113 Adequate capital: credit risk approach based on internal ratings; and APS 115 Adequate Capital: A standardized measurement approach to operational risk.
Given both industry feedback and the findings of a quantitative impact study, APRA proposes to revise some of its original proposals, including:
a certain reduction in the capital difference that applies to principal and interest rate mortgages and all other low risk mortgages
more granular risk weighting compartments and the recognition of additional types of collateral for SME lending, as recommended by the Productivity Commission in its report on competition in the financial system
Lower risk weight for credit cards and personal loans secured by vehicles
"In presenting these latest proposals, APRA sought to reconcile its key objectives of implementing the Basel III reforms with its" indisputably strong "capital ratios with a series of important secondary objectives. These objectives include targeting the structural concentration of residential mortgage loans in the Australian banking system and ensuring an appropriate competitive outcome between different approaches to measuring capital adequacy, "said the president of the bank. APRA, Wayne Byres.
The latest proposals do not change the Level 1 risk weighting for equity investments of ADIs in their affiliates' ODCs.
In addition, Byres stated that the plans would not require ADIs to hold additional capital beyond the already announced targets for indisputably strong benchmarks, and the APRA does not anticipate any impact. significant on the availability of credit for borrowers.
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