Banks can handle the fixed rate cliff, says APRA
While he acknowledged the trend would be tough on some customers, Lonsdale said the banking system had been stress tested for a decline in the property market. He also pointed to previous work to tighten bank lending standards and build up larger capital buffers.
“The system is strong, the system is stable and it is very resilient across a range of financial metrics, whether you’re talking about capital, liquidity, credit, operational risk, they are in good shape.”
APRA oversees the stability of the banking, insurance and superannuation industries – it is tasked with protecting the interests of depositors, insurance customers, and super fund members.
The regulator has long warned of the risks posed by cyberattacks, and after last year’s major hacks of Medibank Private and Optus, cyber resilience will be a top priority this year.
The Reserve Bank has previously said a successful cyberattack on a major financial institution is “almost inevitable,” and Lonsdale said APRA had been talking about cyber risks “ad nauseum” for years. Even so, APRA believes there is still a need for improvement, especially when data processes have been outsourced to businesses not supervised by APRA.
“There needs to be better control testing, board oversight needs to improve, sometimes we see inadequate asset management, and we also see insufficient testing of response plans,” Lonsdale said.
Other priorities for APRA in 2023 include climate change risks in the financial sector; maintaining the pressure on super funds over performance; and an ongoing focus on “risk culture.”
In the cryptocurrency sector, which is getting close attention from regulators globally and domestically, Lonsdale said APRA’s message to the banks remained one that urged caution: “If you’re a regulated engaging in these activities, be careful,” he said.
The RBA has also played down the risks from the fixed rate “cliff” to the banking system and economy, with deputy Michele Bullock last year saying borrowers with “extremely low” fixed rate loans had probably built up savings.
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