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Moody's: APRA's capital framework changes are credit positive for banks

The Australian Prudential Regulation Authority's, or APRA's, proposed changes to its capital framework for authorized deposit taking institutions are credit positive for Australian banks, Moody's said.

The rating agency said the proposed revisions will better align capital and asset risks in the authorized deposit institutions' loan portfolios.

On Feb. 14, APRA sought comments on proposed revisions on banks' capital framework, and on the application of a minimum leverage ratio requirement for authorized deposit-taking institutions.

The revised capital framework proposes lower risk weights for mortgage loans with low loan-to-valuation ratios and higher risk weights for interest-only loans and loans for investment purposes.

Moody's said the higher capital charges on investment loans will better reflect Australian lenders' higher sensitivity to the economic and interest rate cycles, with such loans reporting higher default rates than owner-occupier loans during economic downturns or periods of rising interest rates.

The proposed revisions are at consultation stage and, if adopted, will be implemented on Jan. 1, 2021, the rating agency added.