With a focus on credit risk, the Australian Prudential Regulation Authority is revising the APRA Prudential Standard APS 220 to make the classification of credit exposures consistent with the updates planned under Basel III – often referred to as ‘Basel IV’. Under APRA Prudential Standard APS 220, authorized deposit-taking institutions (ADIs) must set a strategy that reflects their credit risk appetite and profile and maintain policies and processes for controlling or mitigating credit risk over the full credit lifecycle. The Standard also covers such areas as:
In line with the global adoption of Basel IV, APRA is introducing an intricate credit-risk framework. Based on the draft version of the Standard, locally incorporated ADIs will need to calculate RWAs.
With reporting starting in April 2022, ADIs face a daunting task. They need to attain the necessary granular loan-level data and update their systems to perform the required calculations while taking into consideration the Basel credit risk framework, IFRS 9 movement attribution, and deal-level reporting with end-to-end traceability.
Under the Standard, APRA requires ADIs to report credit-risk RWAs together with IFRS 9 ECL movements across similar reporting dimensions.
To comply, ADIs aggressively and strategically need to de-silo their risk and finance data and change their practices related to credit-risk management and reporting by: collecting larger volumes of data, increasing data granulation, sourcing and streamlining data definitions; and boosting the transparency of their calculations and traceability of their data.