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APRA keeps banks' countercyclical capital buffer at 0%, warns of future revision

Australia's banking regulator decided to keep the extra capital buffers that banks are required to hold in case of heightened systemic risk at zero, but flagged the likelihood of non-zero default level in the future, according to a Dec. 11 release.

The Australian Prudential Regulation Authority said it will keep the countercyclical capital buffer for banks at zero, saying the level remains appropriate at this point in time based on an assessment of systemic risk environment for banks.

APRA said it took into consideration low credit growth, movements in residential property prices, minimal change in risk profile of new housing lending and increased entity costs.

However, the regulator warned that it was considering introducing a non-zero default level for the countercyclical buffer as part of broader reforms of banks' capital framework. "Setting the countercyclical capital buffer's default position at a non-zero level as part of the 'unquestionably strong' framework would not only preserve the resilience of the banking sector, but also provide more flexibility to adjust the buffer in response to material changes in financial stability risks," said APRA Chair Wayne Byres.

The regulator's revised capital framework is expected to come into effect from Jan. 1, 2022.