Powered by MOMENTUM MEDIA
subscribe to our newsletter

APRA primes banks for sub-zero rates

The prudential regulator has released draft expectations, which could require banks to prepare for zero and negative interest rates.

APRA has issued a new letter to authorised deposit-taking institutions (ADIs), releasing draft standards for consultation.

The regulator has spelled out a proposed expectation for the banks, that they should take reasonable steps to prepare for a scenario in which the cash rate may fall to zero or below – despite the Reserve Bank stating that a negative rate is highly unlikely.

RBA governor Philip Lowe has previously insisted the cash rate will be maintained at its current record low of 0.1 per cent, for as “long as necessary”, until a raise forecast for 2024.

“This, however, does not preclude the possibility of a negative cash rate in the future,” Therese McCarthy Hockey, APRA executive director for the banking division, wrote in the letter to ADIs.

Advertisement
Advertisement

“Irrespective of the level of the cash rate, it is possible that other interest rates determined in the financial markets could fall to zero or below at any time.”

As laid out in the proposed standards, APRA would expect the banks, at a minimum, to develop “tactical solutions to implement zero and negative market interest rates and cash rate by 30 April 2022”.

All products and activities could fall under the expectation, with the exception of loan products that do not reference the cash rate or a market rate.

The banks are also expected to consider all aspects of affected products and activities, including customer communications and disclosures; operational risks and controls; and conduct-related issues, such as conflicts of interest.

The regulator revealed that it had written to the banks in December, asking about how prepared they are for zero and negative rates, and requesting those who weren’t to supply details around their issues and time frames for mitigation.

PROMOTED CONTENT


The banks generally indicated they are well placed to deal if the RBA decides to hit zero, but for some, APRA warned, negative rates could pose “operational challenges”.

Some ADIs had also noted high costs and competing priorities, such as constraints around the implementation of permanent solutions.

The regulator has referred to a prudential standard requiring banks to maintain a risk management framework to manage material risks.

APRA has said that it considers the risks arising from lack of preparedness for zero and negative rates to be material since it could have significant implications for a bank’s operational processes, product disclosures, IT and accounting systems, among other areas.

The industry consultation will be open until 20 August.

APRA has signalled that it intends to finalise its zero and negative interest rate expectations by 31 October.

[Related: Lowe stays firm on cash rate outlook]

APRA primes banks for sub-zero rates
APRA primes banks for sub-zero rates
mortgagebusiness

If you’re feeling overworked and overwhelmed in this fast-paced mortgage market, it’s time to make some changes, and the Business Accelerator Program can help! Tickets are on sale now. Work smarter, not harder, this year.

Sarah Simpkins

Sarah Simpkins is the news editor across Mortgage Business and The Adviser. 

Previously, she reported on banking, financial services and wealth for InvestorDaily and ifa.

You can contact her on This email address is being protected from spambots. You need JavaScript enabled to view it..

Latest News

Australian buy now, pay later giant Afterpay is set to be acquired by a San Francisco payments fintech, in a deal worth approximately $39 bi...

There has been sustained robust growth in home lending driven by strong owner-occupied lending and faster growth in investor housing, accord...

The prudential regulator has launched a week-long consultation on its regulatory approach for banks offering temporary financial assistance ...

Join Australia's most informed brokers

Do you know which lenders are providing brokers and their customers with the best service?

Use this monthly data to make informed decisions about which lenders to use. Simply contribute to the survey and we'll send you the results directly to your inbox - completely free!

How long do you think it should take to discharge a mortgage?

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.