Credit risk needs to be refined at APRA

Housing accounts for 64% of banking system badets and APRA's recent focus on mortgages and commercial property meant that other credit portfolios did not have the same level of regulatory control .

APRA has introduced several so-called macroprudential measures, such as caps for investor loans and interest only, between 2014 and 2017 to help the Reserve Bank of Australia calm down the booming market. Residential real estate in Sydney and Melbourne.

In 2018, APRA steered its efforts to strengthen the supervisors' attention to the credit risks of small and medium-sized enterprises of the big banks, notes the review.

"In the panel evaluation, APRA's emphasis on credit risks outside the housing market (" non-market "credit) is comparatively less developed and more intense, "notes the capacity review.

"The exception concerns commercial real estate and dairy product exhibits in New Zealand."

The four major Australian banks are major players in the New Zealand market.

The review adds that Australia has experienced 28 years of unprecedented economic growth. The regulator must therefore be prepared to deal with "adverse" scenarios in the financial sector and the economy.

"A less favorable economic environment in the future would increase the pressure on APRA, including its organizational capacity, its crisis management and resolution functions and its credit risk capacity."

Apart from real estate credit, APRA's resources for specialized credit risk are low by international standards, with 17 employees versus 45 for a comparable regulatory agency abroad.

The 146-page report was co-authored by former Westpac leader Diane Smith-Gander and former Deputy Governor of the Reserve Bank of New Zealand Grant Spencer.

It contains 24 recommendations to APRA and the government, including a reworking of APRA's management structure to improve accountability and governance.