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BNPL ‘debts’ to be included in DTI ratios: APRA

Banks will need to include buy now, pay later and higher education debts when reporting debt-to-income ratios to the regulator from September, APRA has said.

The Australian Prudential Regulation Authority (APRA) has released its finalised amendments to its prudential framework, making a number of changes to ensure banks are actively managing the risks within their loan portfolios.

On Tuesday (14 June), the prudential regulator released the new framework, which updates APRA’s prudential standard for credit risk (APS 220 Credit Risk Management) and macroprudential policy credit measures, effective from 1 September 2022. 

The aim of the new requirements for macroprudential policy is to strengthen the transparency, implementation and enforceability of future policy responses to systemic risks.


The changes, which aim to ensure that banks are “operationally prepared” to implement certain macroprudential policy measures, if needed, particularly focus on limiting growth in “higher risk residential mortgage lending”, such as loans at high debt-to-income multiples or high loan-to-valuation ratios.

Writing to authorised deposit-taking institutions (ADIs), APRA chair Wayne Byres noted that the amendments now make clear that banks should be including Higher Education Contribution Scheme (HECS) debts and buy now, pay later (BNPL) “debts” to their debt-to-income ratio reporting.

He explained that the changes came after questions were raised by banks, following industry consultation last year, regarding how they should be treating BNPL or HECS-HELP debt. Despite rising popularity, BNPL has been somewhat of an outlier in regulation and is not regulated under the National Credit Act like normal debt mechanisms, as providers do not charge interest on repayments.

“Some ADIs sought clarification as to whether buy now pay later (BNPL) or HECS-HELP debt should be treated as debt for the purposes of DTI reporting,” Mr Byres said in the letter.

“Under Reporting Standard ARS 223 Residential Mortgage Lending, DTI is defined as the ratio of the credit limit of all debts held by the borrower, to the borrower’s gross income. 

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“To ensure a consistent approach is taken across industry, APRA has clarified… that HECS-HELP loans and debt incurred through BNPL schemes would be included in DTI ratios.”

The DTI would therefore be the ratio of the credit limit of all debts held by the borrower, to the borrowers’ gross income (annual, before-tax income verified by ADI excluding compulsory superannuation contributions and before any discounts or haircuts under the ADI’s serviceability assessment policy).

APRA clarified that this should “include the credit limit of any debts, such as other mortgage lending, personal loans, credit-cards, consumer finance, margin lending, buy now pay later debt, Higher Education Loan Program (HELP) or Higher Education Contribution Scheme (HECS) debt, and any other debts held by the borrower, to any party, to the extent this is known to the ADI”.

The new requirements are aimed at strengthening the transparency, implementation and enforceability of future policy responses aimed at reducing financial stability risks. 

The APRA chair emphasised the importance of lenders actively managing the risks within their loan portfolios, stating: “In the current environment, with high household indebtedness and rising interest rates, it’s essential for banks to prudently and proactively manage risks in residential mortgage lending.

“APRA expects lenders to closely monitor housing lending risks to ensure that aggregate portfolio risks remain within their risk appetite and that standards for new lending remain prudent.”

[Related: DTI limits and buffers in APRA’s arsenal to manage credit risk]

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