Australian regulator changes capital plan for high-risk loans

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By Alice Uribe

SYDNEY – The Australian prudential regulator said it will adjust some upcoming reforms, in part aimed at strengthening capital requirements for home loans.

On Wednesday, the Australian Prudential Regulatory Authority released additional information on its broader banking capital reforms due to take effect in January 2023.

In a letter to Australia’s authorized depository institutions, APRA said it wants to proactively identify key policy parameters for the structure “to help the industry plan ahead for implementation.”

In December 2020, APRA proposed a series of changes to the capital requirements for high-risk home loans, increasing the capital held for mortgages compared to other loans.

On Wednesday, the regulator said it will continue to clarify capital requirements for high-risk mortgages by changing the definition of “long-term loans only at interest.”

“APRA still considers it appropriate to consider mortgage loans with an interest rate of more than five years as” non-standard “, – said in a statement. “However, after considering industry feedback, APRA intends to narrow the scope of the non-standard definition.”

The regulator said it plans to maintain its approach to capital buffers that it outlined earlier, where details included that all banks would have to include a countercyclical buffer of 100 basis points of risk-weighted assets. However, APRA will revise and simplify some of the requirements associated with undeniably strong tests.

Email Alice Uribe at alice.uribe@wsj.com



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