On 25 March 2019, APRA proposed updating its prudential standard on credit risk with an update to APS 220 Credit Risk Management to capture the full credit life cycle.

The following summarises the key changes proposed. We encourage ADIs to review the proposed changes and identify where changes to current policies and procedures are required. There is an opportunity to make a written submission to APRA on the proposed changes by the closing date of 28 June 2019.

Credit risk management

  • Maintain appropriate credit risk appetite statement and credit risk management strategy, reflecting credit risk profile.
  • Maintain prudent policies and processes to identify, measure, monitor, report, control or mitigate credit risk.

Credit risk policies and processes

  • Implementation of prudent internal risk appetite limits on exposure to high risk borrowers, high risk products and activities and locations.

Credit assessment and approval

  • Focus on effective verification of borrowers income, expenses and repayment capability.
  • Sound oversight and undertaking of due diligence required for online lending platforms and use of third parties.

Collateral valuations

  • Independent valuations of collateral must take into account prevailing market conditions.
  • Recognition of the use of alternative valuation methods.

Asset classification

  • Classification changes for prudential reporting on its exposures as ’performing’, ’significantly deteriorated’ or ’non-performing’.
  • Providing consistency with international definitions and complements classifications under AASB 9.

Role of Board and senior management      

  • Enhanced role of the Board in monitoring and oversight of credit risk practices.
  • Annual review and approval of credit risk appetite statement and credit risk management strategy.

Credit origination

  • Identification and recognition of the various origination channels assessing the impacts on the differing risks profiles.

Ongoing monitoring and management

  • Increased measures for ongoing monitoring and oversight of composition and quality of credit portfolio.
  • Establishment of independent, regular reviews over credit risk management processes and practices.

Stress testing

  • Regular portfolio level and risk specific stress testing to ensure monitoring of credit quality.


  • Retain prescribed provisioning in the prudential framework.
  • Removal of the general reserve for credit losses.

Supervisory discretion to impose limits and other measures

  • Discretion for APRA to take appropriate steps to address excessive credit risks being taken, set limits on particular types of lending or require an independent review of an ADI's credit risk management.


Timeline of Amendments:

GTAL_2018_question_mark_purple.png Written submissions should be sent to ADIpolicy@apra.gov.au by 28 June 2019.
GTAL_2017_notes_purple_8871_0.png APRA expects that the final prudential standard, PPG and reporting standards, will be released by the end of 2019.
shield_check_purple_8899_0.png The proposed reforms are due to be implemented from 1 July 2020.

Subscribe to receive our publications

Subscribe now to be kept up-to-date with timely and relevant insights, unique to the nature of your business, your areas of interest and the industry in which you operate.