Australia maintains 3% loan buffer to mitigate financial risks

Australia’s banking regulator, the Australian Prudential Regulation Authority (APRA), announced on Monday its decision to maintain strict home loan lending rules, citing elevated financial system risks and an uncertain economic outlook.

APRA’s Chair, John Lonsdale, highlighted concerns over geopolitical instability, persistent inflation above the central bank’s target range, and high household debt levels.

APRA will continue to require major lenders to assess new borrowers’ ability to repay loans at interest rates at least 3 percentage points above the prevailing home loan rate.

This measure ensures that borrowers can withstand potential increases in living costs and interest rates.

Additionally, the countercyclical capital buffer will remain at 1.0 per cent of risk-weighted assets, providing banks with an extra capital cushion to navigate stressful situations.

The regulator emphasised the importance of maintaining prudent buffers in serviceability assessments amid the uncertain economic landscape.