AST APRA release a letter written to all authorized deposit-taking institutions (also referred to as ADIs) on proposed minor amendments to capital framework for ADIs.
These amendments address specific issues raised by industry on implementation of new capital framework for ADIs; the proposed amendments are technical in nature.
It published material listed below (in mark-up) re same, comprising draft prudential standards; draft reporting standards; as well as draft prudential practice guides.
AST APRA published draft Prudential standard APS 112 capital adequacy: standardised approach to credit risk (APS 112) in mark-up; and draft Prudential standard APS 113 capital adequacy: internal ratings-based approach to credit risk (APS 113) in mark-up.
Draft Reporting Standards Published
Published draft Reporting standard ARS 110.0 capital adequacy (ARS 110.0) mark-up.
In addition, draft Reporting standard ARS 112.0 capital adequacy: standardised approach to credit risk (ARS 112.0) mark-up; and draft Reporting standard ARS 113.0 capital adequacy: internal ratings-based approach to credit risk (ARS 113.0) mark-up.
AST APRA also published draft Reporting standard ARS 115.0 capital adequacy: standardised measurement approach to operational risk (ARS 115.0) in mark-up.
Draft Prudential Practice Guides Published
AST APRA published Prudential practice guide - draft APG 110 capital adequacy (APG 110) in mark-up; and it also published the Prudential practice guide - draft APG 112 capital adequacy: standardised approach to credit risk (APG 112) in mark-up.
In addition, AST APRA published Prudential practice guide - draft APG 113 capital adequacy: internal ratings-based approach to credit risk (APG 113) in mark-up.
Proposed Revisions/Amendments
AST APRA reminded that the ADI capital framework came into effect on Jan. 1, 2023, after extensive industry consultation; aim of these minor updates is to address specific implementation issues raised by industry in practically applying new capital framework.
As these changes are technical in nature, it said it is not adjusting any major policy settings or changing the overall calibration of the framework through this consultation.
Annex A to the letter contains a description of the proposed revisions/amendments.
Including those re risk weight for unrated corporate (non-small to medium enterprise or SME) borrowers; loss given default (LGD) for domestic public infrastructure; and LGD for carbon credits and allowances; creditworthiness checks prior to drawdowns.
In addition, amendments/revisions re internal-ratings based (IRB) scalar for exposures subject to NZ CB's supervisory slotting approach; LGD for multilateral organizations; as well as re pubic sector entities that carry out the functions of a financial institution.
Loan-to-value ratio (LVR) for non-arm's length property transactions; treatment of trusts in five or more investment properties; and public disclosure of overlays.
Validation of supervisory LGD and exposure at default (EAD) estimates; controls on business function approval of ratings; and regarding changes to reporting standards.
Welcomes feedback on the proposed amendments/revisions via this email address.
Next Steps
To ensure ADI capital framework is appropriately calibrated and to understand impact of the proposed amendments, ASTA APRA is conducting a quantitative impact study.
It is conducting this study with selected ADIs, and it said it will review the calibration should the revisions materially change the capital framework’s overall calibration.
Expects updated standards and guidance would become effective from Jun. 30, 2024.
Consultation End
The comment period for this consultation closes on Mar. 8, 2024.
Jun. 2024 AST APRA Response, Finalized Amendments
On Jun. 26, 2024, AST APRA published letter titled ADI capital reforms: minor updates.
The letter is in response to the consultation above, and addresses specific issues raised by industry on the implementation of the new capital framework for ADIs.
AST APRA said that the final amendments are minor and technical in nature.
Final updates reflect industry feedback and revisions by AST APRA, to better align with policy intent; details on specific comments and APRA’s responses provided in annex A.
In response to feedback, AST APRA extended effective date of these requirements by 3 months (to Sep. 30, 2024) to provide additional time for ADIs to implement changes.
ADIs must be compliant with the updated prudential standards by this date and meet the updated reporting requirements for the Sep. 2024 quarter reporting period.
AST APRA published final prudential standards APS 112, along with a mark-up showing amendments; as well as APS 113 along with a mark-up showing amendments made.
It published final reporting standard ARS 110.0, and mark-up to show amendments.
On Sep. 3, 2024, AST GVT registered Banking (prudential standard) determination no. 1 of 2024, that revokes existing APS 112 and determines APS 112 referred to above.
In addition, AST GVT published an explanatory statement with respect to the same.
AST GVT also registered Banking (prudential standard) determination no. 2 of 2024, which revokes existing existing APS 113 and determines APS 113 referred to above.
In addition, AST GVT published explanatory statement re determination no. 2 of 2024.
Determination no. 1 of 2024, determination no. 2 of 2024 each commence on Sep. 30.
