Australian Banking Watchdog Tightens Rules for High-Risk Loans

By Rebecca Zhu
Rebecca Zhu
Rebecca Zhu
Rebecca Zhu is an Australian reporter based in Sydney. She focuses on the Australian economy, property, and education. Contact her at
November 30, 2021 Updated: November 30, 2021

The Australian Prudential Regulation Authority (APRA) will now require banks to hold higher capital levels against interest-only loans, which entail higher risk, under its new bank capital framework.

The changes, to come into force on January 2023, are designed to establish “unquestionably strong” Australian standards that align with the internationally agreed Basel III requirements.

The new framework also loosens rules for high-deposit loans as well as small business loans and commercial property lending. As a result, banks will be allowed to hold less capital against these types of loans.

The new framework will likely widen pricing differences between different types of loans as banks pay more attention to the deposit of new loans.

“Capital is the cornerstone of the banking system’s safety and stability,” APRA Chair Wayne Brynes said. “It protects depositors during periods of stress, ensures banks can access funding, facilitates payments, and helps banks to keep lending to their customers during good times and bad.”

“Although Australia’s banking sector is already strongly capitalised by international standards, the new capital framework will help ensure it stays that way.”

The framework also introduces simplified capital requirements for small banks, those with under $20 billion (US$14 billion) in assets and simple business models.

APRA notes that the Basel framework, developed primarily for large, internationally active banks, means the cost of implementing the full framework for small banks may outweigh the benefits.

“The development of a simplified approach for smaller banks avoids unnecessary regulatory burden, without jeopardising prudential safety,” Brynes said. “It has been designed to benefit a large number of institutions—about three-quarters of domestic banks will be able to take advantage of the simplified approach.”

Australia-based Macquarie Bank, the world’s largest infrastructure asset manager, said the new framework would impact one-quarter of its capital surplus, around $2.2 billion (US$1.57 billion), based on current information available.

Macquarie Group said its capital surplus had included provisions for these changes for some time as APRA continues to consult with the industry.

“We welcome the finalisation of these important capital reforms, which will provide clarity to the investment community,” Macquarie Group’s CFO Alex Harvey said in a statement.

The framework was developed over four years with industry consultation, designed to ensure Australian banks continue to have the financial strength to withstand future adverse economic conditions.

Rebecca Zhu
Rebecca Zhu is an Australian reporter based in Sydney. She focuses on the Australian economy, property, and education. Contact her at