APRA makes call on countercyclical capital buffer

by Miklos Bolza17 Jan 2017
The level for the countercyclical capital buffer will remain at 0% with the Australian Prudential Regulation Authority (APRA) revealing there has been no change in the systemic level of risk within the national banking industry.
In an Information Paper released yesterday (16 January), the regulator explained that after continuous monitoring of the Australian financial industry – with a focus on the housing sector and associated risks – it had deemed that no change was necessary.
“This decision has been made taking into account APRA’s other supervisory activities and prudential measures,” the regulator said in its report.
This included APRA’s supervisory work on housing lending standards as well as the creation of a benchmark in investor lending growth.
The regulator also looked at a number of key indicators including housing credit growth, commercial & residential property price growth, loan pricing margins and non-performing loans.
“In 2016, APRA maintained its focus on reinforcing and improving sound lending standards. In response to this, APRA believes the industry has appreciably improved its residential lending standards.”
The countercyclical capital buffer was created to increase capital requirements for the banking sector in times when excess credit growth correlates with a build-up of risk.
APRA can set the buffer anywhere between 0% and 2.5% of the total risk weighted assets and can reduce or remove it in times of high stress.
When it was first introduced on 17 December 2015, the regulator decided that the buffer applying to the Australian exposures of authorised deposit-taking institutions (ADIs) would sit at 0% from 1 January 2016.
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