APRA's Update Reaffirms Macroprudential Policy Settings

The Australian Prudential Regulation Authority (APRA), the regulatory body responsible for overseeing the Australian financial industry, has released an update on its macroprudential policy, outlining the key factors that have informed its current settings. This document provides greater transparency on macroprudential policy in accordance with APRA's new framework published last year.

Macroprudential policy is an essential aspect of APRA's toolkit, comprising policy measures that aim to promote systemic stability. In an information paper released today, APRA reiterated its view that the current policy settings are appropriate, given the current risk outlook:

1 - a neutral level for the countercyclical capital buffer of 1.0 percent of risk weighted assets, providing a buffer in bank capital for stress if needed; and

2 - a 3 per cent serviceability buffer to maintain prudent lending standards.

APRA Chair John Lonsdale has affirmed that these settings remain appropriate, citing the potential for both domestic and global economic conditions to deteriorate. This reaffirms APRA's commitment to maintaining a stable financial system, which is essential for promoting economic growth and prosperity in Australia.

"APRA closely monitors financial risks, and we see a high degree of uncertainty in the broader outlook, globally and domestically. 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 capitalised. On that basis, we believe our current macroprudential policy settings remain appropriate. In particular APRA's view is that the 3 per cent level remains prudent given the potential for further interest rate rises, high inflation and risks in the labour market.

"These settings, however, are not set in stone. The events of recent years have emphasised that conditions can change rapidly. We 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 macroprudential policy settings accordingly after careful consideration and consultation with other agencies on the Council of Financial Regulators," Mr Lonsdale said.