The Australian Prudential Regulation Authority (APRA) has published an Information Paper giving an update on its macroprudential policy settings, explaining the key factors that have informed current levels.

APRA’s core macroprudential policy toolkit is focused on capital and credit measures.

The current operative settings, in effect from 1 January 2023, are a 1.0 per cent of risk weighted assets for the countercyclical capital buffer (CCyB) and a 3.0 per cent loan serviceability buffer.

APRA’s assessment is that existing macroprudential policy settings remain appropriate in the current risk environment.

The CCyB is a buffer that can be relaxed if needed by APRA in a downturn, to provide banks with flexibility to absorb rather than amplify the impact of systemic shocks. APRA says that key indicators of stress suggest that economic conditions are not at a point where this would be required, and credit growth remains positive.

APRA has also maintained the serviceability buffer at 3.0 per cent above the loan rate. This buffer was increased to this level in late 2021, in an environment of heightened risks for the financial system. APRA says that while lending at high debt-to-income ratios has reduced, a key concern at the time, heightened risks to serviceability remain: there is the potential for further interest rate rises, high inflation and risks in the labour market.

APRA says it is important that all banks maintain prudent lending in the current environment of competitive pressure on standards.

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