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Credit Risk Management Guidance

Friday 20 August 2021

This week saw the release of the final prudential credit risk management guide.

This comes two years after the regulator made announcement to its regulated entities that it was seeking to ‘modernise’ its cred risk management guidance. 

The APG 220 which is intended to help authorised deposit taking agencies to make ‘prudent lending decisions. 

The Australian Prudential standard in Credit Risk Management, which the APG supports, will take the effect in 2022.

The Australian Prudential Regulatory Authority (APRA) has published further clarifications based on feedback they received on their 2020 consultation. 

The prudential regulator said that this will give greater clarity on their expectations:

  • the role of the Board in managing credit risk, aligning with the requirements in APS 220;
  • sound credit assessment and approval processes, including providing examples where some additional flexibility could be considered prudent; and
  • the use of automated valuation methods, including examples for the prudent development of scorecards and use of risk controls.

In a letter to industry the prudential regulator said, “In the current environment, APRA expects Boards to have a strong focus on credit risk management, particularly for residential mortgage lending. APG 220 sets out examples of better practice to assist ADIs in maintaining sound lending practices and managing their credit risk, including during periods of heightened risk. It would be prudent for ADIs to review closely the examples of better practice in APG 220 against their current credit risk management practices, and make changes where appropriate.”