The Australian Prudential Regulation Authority (APRA) has provided an update on the implementation of APS 220 Credit Risk Management for authorised deposit-taking institutions (ADIs) .

ADIs will be required to meet the requirements of Prudential Standard APS 220 Credit Risk Management (APS 220) from 1 January 2022.

APRA is currently consulting on a proposed new attachment to APS 220, Attachment C – Macroprudential policy: credit measures which will commence in the second half of 2022. The attachment could affect non-ADIs as well as ADIs.

The proposed attachment, Macroprudential policy: credit measures, would require ADIs to:

• ensure they have the ability to limit growth in particular forms of lending;
• moderate higher risk lending during periods of heightened systemic risk or meet particular lending standards, at levels determined by APRA; and
• ensure there would be adequate reporting in place to monitor against limits.

Under the proposed attachment to APS 220, the serviceability buffer for residential mortgages will initially be set to at least 3.0 per cent.

Under Part IIB of the Banking Act 1959, APRA can make rules in relation to non-ADI lenders if those lenders are considered to materially contribute to risks of instability in the Australian financial system. It is APRA’s expectation that any rules, if introduced for non-ADI lenders, would likely mirror those set out for ADIs in the draft attachment to APS 220.

Previously proposed minor revisions to APS 220 to ensure alignment with the Government’s proposed reforms to consumer credit laws will not be made as these proposed changes were contingent on the passing of legislation for the Government’s proposed consumer credit reforms. The changes have not yet been passed by Parliament.

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