## EXECUTIVE SUMMARY

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### Key findings on system strength and vulnerabilities
- Authorities have raised bank capital requirements and applied them more conservatively than minimum Basel standards.
- Funding risks have been lowered; financial supervision and systemic risk oversight have been enhanced.
- Policy action has calmed rapid growth in riskier segments of the mortgage market.
- Stretched real estate valuations and high household leverage pose significant macrofinancial risks.
- 27 years of uninterrupted growth has coincided with low inflation, low policy rates, tax incentives, and easy credit, contributing to a rise in household debt and a build-up of real estate exposure.
- Household debt has risen by some 25 percentage points since the previous FSAP to about 190 percent of disposable income.
- The four major banks comprise 80 percent of the system and run similar business models, increasing vulnerability to a common shock.
- Residential real estate forms about 60 percent of loans; commercial real estate (CRE) accounts for a further 7 percentage points.
- Wholesale funding dependence remains around one-third of total funding, of which nearly two-thirds is from international sources.
- Banks’ direct international exposures are mainly to New Zealand, where subsidiaries of the four major Australian banks play a dominant role.
- The ongoing Royal Commission (RC) inquiry has revealed a pattern of misconduct in the financial sector, including at the four major banks.

### Stress testing and resilience
- Combined adverse shock modeled: significant slowdown in China, severe correction in real estate valuations, and marked tightening of global financial conditions.
- Solvency stress-test CET1 results (IMF Staff estimates, percent):
  - Full Sample: Starting Position 10.5; Adverse 2017 9.4; 2018 7.9; 2019 7.2.
  - Largest 5 Banks: Starting Position 10.6; Adverse 2017 9.4; 2018 8.0; 2019 7.2.
  - Mid-sized Banks: Starting Position 9.7; Adverse 2017 8.6; 2018 7.3; 2019 7.0.
- CAR (in percent) — Starting Position and Adverse scenario path:
  - Full Sample: Starting Position 14.7; Adverse 2017 13.1; 2018 11.3; 2019 10.3.
  - Largest 5 Banks: Starting Position 14.9; Adverse 2017 13.3; 2018 11.4; 2019 10.4.
  - Mid-sized Banks: Starting Position 12.9; Adverse 2017 11.5; 2018 10.0; 2019 9.5.
- Key stress assumptions (adverse scenario):
  - Cumulative real estate price decline assumed to exceed 30 percent at the national level.
  - GDP assumed to fall at annual rates of 2.5 and 0.5 percent in the first two years, then recover by 1.6 percent in the third year; cumulative GDP shock of about 10 percentage points relative to baseline.
  - Monetary policy assumed to respond with a 100-basis points reduction in the policy rate in the first year.
- Key findings:
  - All banks met regulatory minimum capital requirements in both baseline and adverse scenarios.
  - Under the adverse scenario the capital ratio of the five largest banks fell from 10.6 percent to 7.2 percent — above the phased-in minimum CET1 requirement of 4.5 percent, and only just above the 7 percent level that would include the capital conservation buffer of a further 2.5 percent.
  - Five mid-sized banks’ average CET1 fell from 9.7 percent to 7.0 percent.
  - Liquidity pressures may arise more abruptly than solvency pressures due to high maturity transformation and continued reliance on overseas wholesale funding.

### Policy evaluation and priorities
- Recent macroprudential measures (restrictions on investor loan growth, limits on interest-only mortgages, stronger lending standards) appear to have slowed mortgage credit growth; the housing market is cooling.
- Given prevailing vulnerabilities, additional tightening measures do not appear warranted at this juncture, but authorities should stand ready to recalibrate policies as necessary.
- Over time, broader tax reforms could reduce structural incentives for leveraged household investment in residential real estate.
- Further reduction in banks’ use of wholesale funding and extension of the duration of their liabilities would lower structural funding risks.
- Recommended readiness assessment for policy tools should:
  - examine data requirements or limitations and any legal or regulatory impediments;
  - place particular emphasis on borrower-based constraints (DTI/DSTI, LTV, time-varying risk weights).

### Regulatory framework and institutional recommendations
- Australia benefits from a robust regulatory framework with generally high conformity to international best practices, but gaps and opportunities to strengthen arrangements remain.
- Steps recommended include:
  - Bolster independence and resourcing of regulatory agencies by removing constraints on policy making powers and providing additional budgetary autonomy and flexibility.
  - Strengthen enforcement powers and expand their use to support effective risk management and mitigate misconduct.
  - Enhance supervisory approaches with periodic in-depth reviews of banks’ governance and risk management.
  - Improve coordination of supervision of internationally active insurance groups.
- APRA-specific recommendations:
  - Finalize recovery and resolution planning and develop resolution planning, particularly for major cross-border banks.
  - Increase focus on banks’ future capital plans and undertake more in-depth reviews of ICAAP inputs, controls, and stress testing programs.
  - Perform comprehensive periodic assessments of banks’ risk management and governance frameworks, including nonfinancial risks.

### Council of Financial Regulators (CFR)
- Current CFR arrangements are informal with limited transparency.
- Recommendations to formalize and increase transparency include:
  - publishing records of CFR meetings and tabling an Annual report to Parliament by CFR agency Heads, highlighting systemic risks and mitigation actions.
  - enhancing monitoring framework for systemic risk by developing and publishing a series of metrics to track systemic risk and key vulnerabilities.
  - conducting a comprehensive review of data needs and implementing improvements, publishing resulting data where feasible.

### Data, analytics, and stress testing
- Shortfalls noted in data granularity and consistency to support supervisory and systemic risk analysis and policy formulation.
- CFR agencies are recommended to:
  - Conduct a major review of potential data needs and implement improvements, publishing resulting data where feasible.
  - Enhance monitoring, modeling and stress testing frameworks for solvency, liquidity and contagion risk and draw on results to inform policy.
- Stress testing methodologies and scope:
  - Covered the 10 largest banks, accounting for nearly 90 percent of total system assets.
  - Methodologies include balance sheet-based solvency tests, satellite models for PDs/LGDs/NPLs, cash-flow liquidity tests using maturity buckets, Basel III-LCR and NSFR ratios, and interbank contagion models (Espinosa-Vega and Solé; Diebold and Yilmaz).

### Policy tools and readiness
- Priority tools for review: DTI/DSTI and LTV restrictions, time-varying risk weights, and tools to address nonbank and cyclical asset risks such as CRE.
- Specific borrower-based measures to consider:
  - Caps on loan-to-value (LTV) ratios.
  - Income-based ratios, such as limits on loan-to-income (LTI) or broader debt-to-income (DTI).
  - Caps under a debt servicing test or refinement of the existing net income serviceability test for additional flexibility.
- Counter-cyclical capital buffer:
  - Authorities should continue to refine metrics for activation; the buffer could build resilience to adverse shocks and help constrain credit growth during cyclical upswings.

### Crisis management and resolution
- Encouraging progress: APRA’s resolution powers strengthened and recovery planning expanded to cover additional institutions under the Crisis Management Act.
- New powers under the Crisis Management Act include: conglomerate group statutory management, widened directions, transfer, conversion and write-off of capital instruments, stays, foreign branches, broadened use of the Financial Claims Scheme (FCS), wind-up, and resolution planning.
- Remaining priorities:
  - Better integrate banks’ recovery planning into risk management frameworks and operational testing.
  - Complete the resolution policy framework promptly to ensure banks expand loss absorbency capacity to bear costs of their own failure.
  - Roll out and validate bank-specific resolution plans swiftly.
  - Advance mutual understanding of cross-border bank resolution modalities with New Zealand authorities.
  - Finalize the resolution framework for Financial Market Infrastructures (FMIs).
- Recommendations on depositor and resolution safeguards:
  - Introduce an ex-ante funded deposit insurance scheme and a statutory bail-in regime, based on best international practice.
  - Clarify the goals and operational modalities of the Financial System Stability Special Account.
  - Add the “no creditor worse off” regime as an additional legal safeguard to the bank resolution framework.
- Emergency Liquidity Assistance (ELA):
  - RBA recommendations: formalize the ELA framework and define modalities for solvency assessment, procedures for government indemnity, and controls for lending beyond the CLF.
  - IMF recommendation: ELA should only be provided to solvent financial institutions on a temporary basis against adequate collateral.

### Selected key statistics and structural facts
- Household debt: about 190 percent of disposable income.
- Increase in household debt since previous FSAP: some 25 percentage points.
- Share of system held by four major banks: 80 percent.
- Share of bank loans that are residential: about 60 percent.
- Additional CRE share of loans: 7 percentage points.
- Wholesale funding: around one-third of total funding; nearly two-thirds of that from international sources.
- Banking sector regulatory capital ratio: 14.9 percent (CET1 ratio of 10.6 percent) against the phased-in Basel III requirement of 9.9 percent as of 2018 (including the capital conservation buffer).
- APRA “unquestionably strong” CET1 benchmark: at least 10.5 percent for the four major banks (announcement in July 2017, with requested compliance by January 1, 2020 at the latest).
- Financial sector assets: about 400 percent of GDP (up from an estimated 340 percent of GDP in the 2012 FSAP).
- Superannuation funds hold A$2.7 trillion in assets.
- Shadow banking assets: 7 percent of financial system assets.
- Non-ADIs share of housing credit: about 4 percent (down from 10 percent in 2007).
- SMSF leveraged exposures to real estate: currently no more than A$60 billion.
- Mortgage buffers for owner-occupiers: almost three years of scheduled repayments at interest rates in 2017.
- Household debt-servicing ratio (scheduled principal and interest mortgage repayments): about 10 percent.

_1ausea2019007 — IMF Australia FSAP (Executive Summary and selected chapters as provided)_

### EXECUTIVE SUMMARY ___________________________________________________________________________ 6

### EXECUTIVE SUMMARY

### Key findings on system strength and vulnerabilities
- Authorities have raised bank capital requirements and applied them more conservatively than minimum Basel standards.
- Funding risks have been lowered; financial supervision and systemic risk oversight have been enhanced.
- Policy action has calmed rapid growth in riskier segments of the mortgage market.
- Stretched real estate valuations and high household leverage pose significant macrofinancial risks.
- 27 years of uninterrupted growth has coincided with low inflation, low policy rates, tax incentives, and easy credit, contributing to a rise in household debt and a build-up of real estate exposure.
- Household debt has risen by some 25 percentage points since the previous FSAP to about 190 percent of disposable income.
- The four major banks comprise 80 percent of the system and run similar business models, increasing vulnerability to a common shock.
- Residential real estate forms about 60 percent of loans; commercial real estate (CRE) accounts for a further 7 percentage points.
- Wholesale funding dependence remains around one-third of total funding, of which nearly two-thirds is from international sources.
- Banks’ direct international exposures are mainly to New Zealand, where subsidiaries of the four major Australian banks play a dominant role.
- The ongoing Royal Commission (RC) inquiry has revealed a pattern of misconduct in the financial sector, including at the four major banks.

### Stress testing and resilience
- A combined shock—significant slowdown in China, severe correction in real estate valuations, and marked tightening of global financial conditions—would exert pressures on capital, although the 10 largest banks would all still meet regulatory minima.
- Liquidity pressures may arise more abruptly than solvency pressures due to high maturity transformation and continued reliance on overseas wholesale funding.

### Policy evaluation and priorities
- Recent macroprudential measures (restrictions on investor loan growth, limits on interest-only mortgages, and stronger lending standards) appear to have slowed mortgage credit growth; the housing market is cooling.
- Given prevailing vulnerabilities, additional tightening measures do not appear warranted at this juncture, but authorities should stand ready to recalibrate policies as necessary.
- Over time, broader tax reforms could reduce structural incentives for leveraged household investment in residential real estate.
- Further reduction in banks’ use of wholesale funding and extension of the duration of their liabilities would lower structural funding risks.

### Regulatory framework and institutional recommendations
- Australia benefits from a robust regulatory framework with generally high conformity to international best practices, but gaps and opportunities to strengthen arrangements remain.
- Steps recommended include:
  - Bolster independence and resourcing of regulatory agencies by removing constraints on policy making powers and providing additional budgetary autonomy and flexibility.
  - Strengthen enforcement powers and expand their use to support effective risk management and mitigate misconduct.
  - Enhance supervisory approaches with periodic in-depth reviews of banks’ governance and risk management.
  - Improve coordination of supervision of internationally active insurance groups.

### Council of Financial Regulators (CFR)
- Current CFR arrangements are informal with limited transparency.
- Recommendations to formalize and increase transparency include publishing records of CFR meetings and tabling an Annual report to Parliament by CFR agency Heads, highlighting systemic risks and mitigation actions.

### Data, analytics, and stress testing
- Shortfalls noted in data granularity and consistency to support supervisory and systemic risk analysis and policy formulation.
- CFR agencies are recommended to:
  - Conduct a major review of potential data needs and implement improvements, publishing resulting data where feasible.
  - Enhance monitoring, modeling and stress testing frameworks for solvency, liquidity and contagion risk and draw on results to inform policy.

### Policy tools and readiness
- Expand the policy toolkit and assess readiness to deploy tools, including addressing data and legal/regulatory impediments.
- Priority tools for review: DTI/DSTI and LTV restrictions, time-varying risk weights, and tools to address nonbank and cyclical asset risks such as CRE.

### Crisis management and resolution
- Encouraging progress: APRA’s resolution powers strengthened and recovery planning expanded to cover additional institutions.
- Remaining priorities:
  - Better integrate banks’ recovery planning into risk management frameworks.
  - Complete the resolution policy framework promptly to ensure banks expand loss absorbency capacity to bear costs of their own failure.
  - Roll out and validate bank-specific resolution plans swiftly.
  - Advance mutual understanding of cross-border bank resolution modalities with New Zealand authorities.
  - Finalize the resolution framework for Financial Market Infrastructures (FMIs).

### Selected key statistics and structural facts
- Household debt: about 190 percent of disposable income.
- Increase in household debt since previous FSAP: some 25 percentage points.
- Share of system held by four major banks: 80 percent.
- Share of bank loans that are residential: about 60 percent.
- Additional CRE share of loans: 7 percentage points.
- Wholesale funding: around one-third of total funding; nearly two-thirds of that from international sources.
- Australian banking system has delivered 27 years of uninterrupted growth.

### Table 1 — FSAP Key Recommendations (summary of actions and timing)
- Strengthen the independence of APRA and ASIC; strengthen ASIC enforcement powers and expand their use (Treasury, APRA, ASIC). Time: ST
- Enhance APRA’s supervisory approach with periodic in-depth reviews of governance and risk management (APRA). Time: ST
- Strengthen integration of systemic risk analysis and stress testing into supervisory processes (APRA, RBA). Time: I
- Commission and implement a comprehensive forward-looking review of potential data needs; improve data available to CFR agencies (CFR agencies). Time: MT
- Enhance monitoring, modeling and stress testing framework for solvency, liquidity and contagion risk; use results to inform policy (CFR agencies). Time: ST
- Encourage maturity extension and lower use of overseas wholesale funding (APRA). Time: I
- Formalize and increase transparency of the CFR; publish meeting records and an Annual Report to Parliament (CFR agencies). Time: I
- CFR readiness review for an expanded set of policies and address deployment impediments (CFR agencies). Time: I
- CFR to commission analysis on household leverage policies and international investment flows’ implications for real estate (CFR agencies). Time: MT
- Complete the resolution policy framework; develop resolution plans for large and mid-sized banks and conglomerates and subject them to annual review (APRA, Treasury). Time: ST
- Expand loss-absorption capacity for large and mid-sized banks and introduce statutory powers for resolution funding options (APRA, Treasury). Time: ST
- Advance Australia–New Zealand understanding on cross-border resolution modalities via the Trans-Tasman Banking Council (CFR agencies). Time: ST
- Strengthen RBA and ASIC independence for FMI oversight; enhance enforcement and compliance (RBA, ASIC, Treasury). Time: I
- Finalize FMI resolution regime in line with the FSB Key Attributes (RBA, ASIC, Treasury). Time: ST
- Expand AML/CFT regime to cover all DNFBPs and strengthen AML/CFT supervision, including data collection, oversight, and enforcement (Department of Home Affairs, Treasury, AUSTRAC). Time: (as listed)

*Source: IMF Australia FSAP — Executive Summary*

### 3.      Stretched real estate valuations and high household debt pose macrofinancial risks:

### 3.      Stretched real estate valuations and high household debt pose macrofinancial risks

### A. Key findings on real estate and household debt
- House prices rose by about 70 percent over the past decade at the national level and have now started to decline.
- In Sydney and Melbourne, prices had doubled on average over 10 years, and these two cities have experienced sharper falls in recent months.
- Commercial real estate prices, particularly for office space, rose sharply in major cities over the past decade and have shown few signs of cooling.
- Housing affordability (linking incomes to prices) is near all-time lows.
- Household debt currently stands at some 190 percent of disposable income (some 20–25 percentage-points above the level in the 2012 FSAP) and is very high by international standards.
- Debt is overwhelmingly secured by housing and financial assets.
- Substantial pension savings through the mandatory superannuation system provide an additional counterbalance.

### B. Macrofinancial risk channels and adverse scenarios
- A sharp correction in real estate markets could trigger a vicious feedback loop: falling real estate valuations → higher nonperforming loans → tighter bank credit → falling consumer confidence → weaker growth (as during the GFC).
- Bank impacts would be largely through credit losses given large exposures to the housing market and to CRE; weaker banks could face deposit outflows or a significant decline in wholesale funding.
- A further key risk is a significant slowdown in China’s growth:
  - Australian banks’ direct exposure to China is about 4 percent of overall claims.
  - One-third of Australian goods exports go to China, including 40 percent of commodities.
  - Services exports to China (tourism and education) have grown particularly strongly.
  - A sharp slowdown in Chinese growth would lower Australian export revenues markedly and likely raise bank losses on corporate lending and the broader credit portfolio.
- An abrupt tightening of global financial conditions could:
  - Spike risk premia and increase volatility, raising funding costs for Australian banks that rely on international funding markets.
  - Lead to higher funding costs being passed on to variable-rate borrowers, weakening debt servicing capacity.
  - Potentially be accompanied by a disorderly correction in asset prices and a depreciation of the Australian dollar.

### C. Banking environment — structure, capital, liquidity, and funding
- Financial sector assets are about 400 percent of GDP (up from an estimated 340 percent of GDP in the 2012 FSAP).
- Sector composition: 84 commercial banks (59 percent of financial assets); pension funds (27 percent); insurance companies (5 percent); investment vehicles (5 percent); other finance companies (4 percent).
- The four largest banks (DSIBs) represent about 80 percent of system assets.
- Banks’ total regulatory capital ratio is 14.9 percent (CET1 ratio of 10.6 percent) against the phased-in Basel III requirement of 9.9 percent as of 2018 (including the capital conservation buffer).
- APRA’s conservative implementation of Basel (including higher risk weights on mortgage lending under IRB models) and a 1 percent DSIB surcharge underpin relatively high regulatory requirements.
- APRA announced in July 2017 that the four major banks need CET1 capital ratios of at least 10.5 percent to meet the “unquestionably strong” benchmark, effectively increasing minimum capital requirements for all IRB banks by about 150 bps and for other ADIs by around 50 bps; all ADIs are requested to meet the new benchmarks by January 1, 2020 at the latest.
- Banking sector liquidity complies fully with Basel LCR and NSFR standards, though the system relies on central bank facilities to meet these requirements given the relatively low volume of domestic government securities.
- Funding composition:
  - Bulk funding comprises domestic deposits, but wholesale debt remains sizable — about one-third of total liabilities — of which nearly two-thirds is from international sources.
  - Large banks rely more heavily on debt markets, including overseas markets, than mid-sized banks.
  - Since the GFC, banks have increased the average duration of wholesale funding and hedged currency risk with swaps matching funding tenors to reduce rollover risk.
- Profitability and asset quality:
  - Banking sector profitability remains high in global terms but has declined in recent years.
  - Average nonperforming loans (NPLs) are only one percent.
  - Provisions are about 40 percent of NPLs.
  - Mortgage lending comprises over half of bank lending; about one-third of mortgages are higher-risk interest-only mortgages.
  - Commercial real estate averages around an additional 7 percent of major banks’ loan portfolios.
  - Loan-to-value ratios (LTVs) on the overall stock of mortgage loans average about 60 percent.

### D. Cross-border exposures and concentration
- Banks’ consolidated foreign claims are about 20 percent of banks’ assets.
- Claims on New Zealand-based entities comprise over 40 percent of total foreign claims.
- Claims on global banks amount to roughly 3 percent of total assets, with largest exposures to banks in the United States, China, and the United Kingdom.
- Cross-border exposures are concentrated among the big four banks.

### E. Nonbank financial intermediation and superannuation
- Shadow banking assets make up 7 percent of financial system assets (based on the most recent FSB analysis).
- Non-ADIs make up about a 4 percent share of housing credit, down from 10 percent in 2007.
- Nonbank RMBS issuances have risen significantly over the past two years.
- Private funds have been set up to engage in corporate lending that banks have moved away from.
- Superannuation funds hold A$2.7 trillion in assets (about one-quarter of the financial sector).
  - Superannuation is primarily defined-contribution; defined benefit plans make up about 14 percent of pension liabilities.
  - Superannuation funds allocate about 10 percent of assets to real estate and have become more active in other forms of lending.
  - Self-managed superannuation funds (SMSFs) hold about 28 percent of all superannuation assets and can use leverage for real estate investment; such leveraged exposures are currently no more than A$60 billion.

### F. Household sector resilience and vulnerabilities
- Household debt reached 190 percent of disposable income in 2017, about 25 percentage-points higher than at the time of the previous FSAP and high relative to other advanced economies.
- Most household debt is mortgage debt, collateralized by real estate; a significant price correction would erode collateral value.
- Households hold substantial other assets, including financial assets and cash in offset deposit accounts, and large superannuation balances, which provide repayment buffers.
- Mortgage buffers for owner-occupiers amount to almost three years of scheduled repayments at interest rates in 2017.
- Household debt-servicing ratio (scheduled principal and interest mortgage repayments) has remained broadly unchanged at about 10 percent.
- Distributional risks: a quarter of households carry debt of more than three times income.

### G. Corporate sector financing and vulnerabilities
- The nonfinancial corporate sector is more dependent on capital markets than banks for financing; bank loans comprise only about 15 percent of total corporate liabilities.
- Corporate liabilities (including equity) are about 250 percent of GDP (based on a sample of 250 firms from S&P Capital IQ with combined debt of around A$1 tn).
- Corporate leverage has risen somewhat since the GFC but remains low with debt of about 60 percent of equity.
- Gross operating profits recovered sharply after 2016 and corporate insolvencies have fallen from the GFC peak.
- Leverage is higher in some sectors (energy, industrials, utilities, consumer discretionary, real estate), which together account for combined debt liabilities about half of the overall corporate sector’s debt.
- Under a low-probability adverse scenario (sharp fall in corporate earnings and simultaneous increase in interest servicing costs), a high proportion of firms in these leveraged sectors could face emerging debt-servicing pressures without remedial action by management.

### H. Recent conduct, competition, and regulatory developments
- An interim ACCC report (March 2018) found evidence of oligopolistic behavior by major banks in mortgage pricing; the Productivity Commission highlighted similar concerns in June 2018.
- Strengthening bank competition is a public policy objective within the ‘four pillars’ policy (major four banks are not allowed to merge with each other or with a foreign bank).
- The Royal Commission is uncovering significant misconduct across banks and financial service entities (fees for no service, deception, data losses, inadequate verification of borrower creditworthiness, AML/CFT breaches), raising concerns about culture and dominance in the sector.

### I. Existing policy actions and implications
- Macroprudential measures have contributed to easing pressures in the housing market; a soft landing is the most likely baseline but risks of a stronger downturn remain.
- Regulatory capital and liquidity frameworks: APRA’s conservative approach and the “unquestionably strong” CET1 benchmark (10.5 percent for major banks) are intended to bolster resilience.
- Authorities have encouraged a reduction in wholesale funding reliance; banks have lengthened funding duration and used swaps to hedge currency risk.
- The superannuation sector, given size and increased exposure to real estate and leveraged SMSFs, should continue to be closely monitored by authorities.

*Source: IMF staff analysis in 1ausea2019007 - 3.      Stretched real estate valuations and high household debt pose macrofinancial risks.*

### 20.      The FSAP assessed the resilience of banks to credit, liquidity, and contagion risks.

### 20.      The FSAP assessed the resilience of banks to credit, liquidity, and contagion risks.

### Credit Risks
- Coverage: exercise covered the 10 largest banks, accounting for nearly 90 percent of total system assets.
- Scenarios and assumptions:
  - Two scenarios over a three-year time horizon: baseline (April 2018 WEO projections) and an adverse stress scenario combining three shocks: (i) a severe decline in real estate prices; (ii) a significant slowdown in China and a decline in global economic growth (e.g., rising global trade protectionism); and (iii) sharper-than-expected tightening of global financial conditions.
  - Adverse scenario macro path:
    - GDP is assumed to fall at annual rates of 2.5 and 0.5 percent in the first two years, before recovering by 1.6 percent in the third year.
    - Cumulative GDP shock of about 10 percentage points relative to the baseline, or 3.75 times the standard deviation of three-year cumulative GDP growth rates observed in the past 30 years.
    - Cumulative real estate price decline assumed to exceed 30 percent at the national level.
    - Monetary policy assumed to respond with a 100-basis points reduction in the policy rate in the first year; increased risk aversion leads to a steeper sovereign yield curve and wider credit spreads.
- Solvency stress test results (IMF Staff estimates):
  - CET1 Ratio (in percent) — Starting Position and Adverse scenario path:
    - Full Sample: Starting Position 10.5; Adverse 2017 9.4; 2018 7.9; 2019 7.2.
    - Largest 5 Banks: Starting Position 10.6; Adverse 2017 9.4; 2018 8.0; 2019 7.2.
    - Mid-sized Banks: Starting Position 9.7; Adverse 2017 8.6; 2018 7.3; 2019 7.0.
  - CAR (in percent) — Starting Position and Adverse scenario path:
    - Full Sample: Starting Position 14.7; Adverse 2017 13.1; 2018 11.3; 2019 10.3.
    - Largest 5 Banks: Starting Position 14.9; Adverse 2017 13.3; 2018 11.4; 2019 10.4.
    - Mid-sized Banks: Starting Position 12.9; Adverse 2017 11.5; 2018 10.0; 2019 9.5.
- Key findings:
  - All banks met regulatory minimum capital requirements in both baseline and adverse scenarios.
  - In the adverse scenario the capital ratio of the five largest banks fell from 10.6 percent to 7.2 percent — above the phased-in minimum CET1 requirement of 4.5 percent, and only just above the 7 percent level that would include the capital conservation buffer of a further 2.5 percent.
    - Note: This hurdle does not include the D-SIBs surcharge of a further 1 percentage point of RWA.
  - Five mid-sized banks’ average CET1 fell from 9.7 percent to 7.0 percent.
  - Differences in stress outcomes across banks stem from portfolio composition (e.g., relative riskiness of mortgage portfolios in terms of LTV ratios or holdings of securities) and funding structure (relative dependence on wholesale funding).
- Caveats and data limitations:
  - Stress test analysis excludes certain risks such as operational risk, legal risk, or unexpected costs from inquiries into financial sector misconduct.
  - Due to data limitations, the FSAP team could not capture differences in the Interest Only (IO) composition of banks’ mortgage portfolios and potential risks related to conversion to Principal and Interest (P&I) loans.

### Liquidity Risks
- Regulatory compliance: Each of the top 10 banks satisfies Basel LCR and NSFR requirements comfortably.
- Stress scenarios and outcomes:
  - “Retail stress”:
    - Assumed retail deposit withdrawals 1.5 to 2 times higher than regulatory assumptions in baseline LCR calculations.
    - Aggregate system fully covered the assumed outflows, indicating relative resilience to large retail deposit withdrawals.
  - “Wholesale stress”:
    - Drying-up of wholesale funding similar to GFC conditions led aggregate liquidity coverage of the system to fall to about 90 percent over a 30-day period, with six banks below the 100 percent threshold.
    - Large banks were more severely affected than mid-sized banks due to higher dependence on wholesale debt.
  - “Protracted stress” (cash flow–based, up to one year):
    - System met the test in aggregate, but three banks faced cash shortfalls after several months of severe funding stress even after utilizing the central bank Committed Liquidity Facility (CLF).
- Implication: Extending banks’ funding maturity profile and reducing reliance on wholesale funding would lower overall structural funding risks.

### Contagion Risks
- Cross-border and network findings:
  - Network analysis (using correlations between daily equity returns) indicates a relatively low degree of interconnectedness between major Australian banks and G-SIBs, but Australian banks are tightly interconnected with each other in equity price movements.
  - Australian banks are exposed to potential funding shocks from several advanced economies; stylized balance-sheet network analysis shows sensitivity to credit or funding shocks emanating from the United Kingdom, the United States, and, to a lesser extent, Singapore and Hong Kong SAR.
  - Banks also carry extensive parent-subsidiary linkages with New Zealand.
- Domestic exposures:
  - On-balance sheet interbank exposure is relatively small, comprising about 5 percent of assets.
  - Off-balance sheet exposure through the derivatives market has been growing.
- Cross-border inward spillover analysis (IMF staff calculations using Vega-Sole methodology and APRA bank-level data as of June 2018):
  - Measures capital impairment for each of the top 10 Australian banks under shock assumptions:
    - Mild credit/funding: LGD = 40 percent, funding rollover rate = 65 percent, haircut on fire sale of assets = 50 percent.
    - Severe funding: LGD = 0 percent, funding rollover rate = 0 percent, haircut on fire sale of assets = 100 percent.
    - Severe credit: LGD = 100 percent, funding rollover rate = 100 percent.
    - Severe credit and funding: LGD = 100 percent, funding rollover rate = 0 percent, haircut on assets = 100 percent.
  - Results highlight greater external vulnerability of the five large banks compared with mid-sized banks.

### Financial Stability Policy — Oversight Framework
- Institutional roles:
  - Australian Prudential Regulation Authority (APRA): prudential regulation and supervision of authorized deposit-taking institutions (ADIs) and their resolution; regulation and supervision of general, life, and private health insurance companies and most of the superannuation industry.
  - Australian Securities and Investments Commission (ASIC): registration and supervision of corporations; licensing of financial service and credit providers; market conduct regulation and supervision in the financial sector.
  - Reserve Bank of Australia (RBA): monetary policy; overseeing financial system stability; supervision of clearing, settlement and payment systems.
  - Treasury: advice to the Australian Government on financial sector regulatory framework and reforms to promote stability and efficiency of the financial system.
- Council of Financial Regulators (CFR):
  - CFR, chaired by the RBA Governor, serves as a forum for discussion and information-sharing but has no powers or decision-making responsibilities and does not publish records or reports of its activities except for a short high-level description in RBA’s semi-annual FSR.
  - The CFR’s informal arrangement has worked flexibly but may bias toward inaction on financial stability issues; recommendation to formalize macroprudential framework to strengthen accountability and promote policy action.
- Observations on APRA:
  - Prudential toolkit largely controlled by APRA; APRA consults CFR colleagues on important policy actions but is under no obligation to do so.
  - Example: end-2014 introduction of prudential debt serviceability metrics aimed at improving loan quality and moderating household debt buildup.
- Recommendations to strengthen CFR and systemic risk oversight:
  - Publication of CFR views on critical financial stability matters in an Annual Report (short published report presented to Parliament by CFR agency Heads annually), summarizing views on significant risks and steps to address them, and broader CFR work on emerging risks and data gaps.
  - Publication of records of meetings to enhance transparency while preserving ability for open discourse on systemic risks.
    - Note: In December 2018, after the FSAP missions, authorities decided to publish a statement following each regular quarterly CFR meeting.
  - Enhance monitoring framework for systemic risk by developing and publishing a series of metrics to track systemic risk and key vulnerabilities (recognizing need for case-specific analysis).
  - Conduct a comprehensive review of data needs in financial stability and supervisory policy to address significant data gaps and consistency issues that impede system-wide analyses such as stress tests.
    - Examples of data limitations: absence of granular data on lending and NPLs such as IO and CRE categories, loan-loss provisioning of certain banks, historical recovery rates for certain loan types, and consistent cross-border interbank and bank-NBFI exposures.

*Source: IMF Staff estimates and IMF FSAP technical assessments contained in the supplied chapter.*

### 30.      In recent years, the authorities have taken steps to strengthen banks’ lending

### 1ausea2019007 - 30.      In recent years, the authorities have taken steps to strengthen banks’ lending

### Lending measures and impact
- Measures implemented by APRA, reinforced by ASIC, and supported by RBA communications (e.g., semiannual Financial Stability Review and speeches).
- Key actions included limits on investor loans and interest-only (IO) loans, and enhanced focus on high-LTV loans and borrowers’ DTI metrics, with enhanced reporting on DTI.
- A Comprehensive Credit Reporting (CCR) regime was introduced in 2018.
- Outcomes:
  - Growth of investor loans slowed after 2014.
  - The share of IO loans in new approvals dropped sharply after the 2017 measures.
  - Banks strengthened lending standards and serviceability requirements, particularly for high LTV borrowers.
  - Recent data suggest these measures contributed to a cooling of the housing market along with lower demand from foreign buyers.
- APRA announced in April 2018 that the supervisory benchmark on investor loans would be removed from July 2018, subject to ADIs providing assurance on the strength of their lending standards. In December 2018, following the FSAP missions, APRA announced that the benchmark on IO loans would be removed from January 2019 subject to the same assurance. (footnote retained as in source)

### Structural vulnerabilities in the financial system
- Persistent vulnerabilities:
  - Household indebtedness remains very high.
  - Banks’ portfolios are concentrated and heavily exposed to the residential mortgage sector.
  - Banks face rollover risk on overseas funding.
  - Wholesale funding dependence remains around one-third of total funding, of which nearly two-thirds is from international sources.
  - Tax system provides incentives for leveraged investment by households, including in residential real estate.
  - Commercial real estate sector shows few signs of cooling and prices have risen sharply in recent years; bank exposures to this sector are significantly smaller than to households but the sector is highly cyclical.

### Policy toolkit and readiness recommendations
- Authorities recommended to carry out a ‘readiness’ assessment of potential policy options to facilitate introduction of new or expanded measures if needed.
  - Assessment should examine data requirements or limitations and any legal or regulatory impediments.
  - Particular emphasis on borrower-based constraints given prevailing vulnerabilities.
- Potential borrower-based measures to consider:
  - Caps on loan-to-value (LTV) ratios.
  - Income-based ratios, such as limits on loan-to-income (LTI) or broader debt-to-income (DTI).
  - Caps under a debt servicing test or refinement of the existing net income serviceability test for additional flexibility.
- Counter-cyclical capital buffer:
  - Authorities should continue to refine metrics for activation.
  - The buffer could build resilience to adverse shocks and help constrain credit growth during cyclical upswings, and be gradually reduced as systemic risk declined.

### Banking supervision—progress and gaps
- Since the 2012 FSAP, oversight has been significantly strengthened; IMF conducted a detailed assessment and found APRA implemented key elements of the international regulatory reform agenda.
- APRA achievements:
  - High degree of compliance with the Basel Core Principles for Effective Supervision (BCPs).
  - Strengthened capital framework, implemented Basel III liquidity standards, reinforced mortgage lending standards, improved governance and accountability, and strengthened crisis management and preparedness.
  - Other reforms: cross-industry risk management standard, governance and risk framework for conglomerates, phased approach to licensing.
- Remaining priorities and recommendations:
  - Finalize recovery and resolution planning.
  - Improve independence and funding capacity of APRA and ASIC; reduce susceptibility to government direction and increase budgetary autonomy and flexibility to attract specialized staff (IT, cyber risks, advanced risk analytics, compliance).
  - APRA should perform comprehensive periodic assessments of banks’ risk management and governance frameworks, including nonfinancial risks via closer engagement with ASIC and AUSTRAC.
  - Consider escalating supervisory actions, using formal corrective measures (such as directions) more actively.
  - Finalize recovery planning framework and develop resolution planning, particularly for major cross-border banks. (See section on Financial Crisis Management and Safety Nets.)
- Capital and ICAAP:
  - ADIs subject to a conservative regulatory capital regime and exhibit relatively strong regulatory capital ratios.
  - APRA should consider greater focus on banks’ future capital plans and undertake more in-depth reviews of ICAAP inputs, controls, and stress testing programs.
- Credit risk supervision:
  - APRA should continue thematic reviews of credit risk and perform more thorough periodic reviews of credit risk management processes, including deep dives beyond residential mortgages and commercial real estate.
  - Progress with revising prudential standards on credit quality (treatment of problem assets) and related party standard to align with international standards.

### AML/CFT supervision observations (AUSTRAC)
- AUSTRAC has authority to oversee banks’ AML/CFT systems but relies significantly on banks’ self-reporting of weaknesses, which has not always been effective.
- Recommendation: AUSTRAC should enhance supervisory approach by performing end-to-end periodic thematic reviews of AML/CFT systems for major banks and take swift formal action to address weaknesses and critical compliance issues.

### Insurance supervision
- Supervisory challenges from:
  - Offerings of investment products created synthetically with derivatives.
  - Creation of non-transparent offshore reinsurance and investment vehicles.
  - Holdings of foreign bonds to supplement limited domestic government securities.
  - Activities of insurers within complex financial groups and intragroup transactions to skirt regulation.
- Recommendations:
  - Impose group-level capital requirements to avoid regulatory arbitrage.
  - Strengthen governance and risk management framework applicable to insurers.
  - Boost ASIC’s powers to apply more punitive penalties or invoke suspension of licenses as appropriate.
  - Promote further coordination between APRA and ASIC on governance and conduct issues.

### Financial Market Infrastructures (FMIs)
- Status:
  - FMIs generally operate reliably; new entrants and competitors have emerged since 2011.
  - RITS (operated by RBA) is the only domestic systemically important interbank payment system.
  - ASX group operates integrated infrastructure including trading platforms, two central counterparties (CCPs) and two securities settlement systems (SSSs).
  - Since 2011, ASX has faced competition from Chi-X, LCH Ltd, and CME in some markets.
- Recommendations:
  - Strengthen enforcement powers for supervision of CCPs and SSSs to promote compliance with PFMI and to take corrective actions; promote effective competition between FMIs.
  - Enhance cooperation between domestic and foreign authorities for crisis events affecting FMIs.
  - Strengthen ASX Clear’s governance and risk management: consider separation of house and client accounts, concentration limits on collateral, holding adequate pre-funded liquid resources, improvements in intraday margin calls, and address operational risks.
  - Prioritize finalization of the special resolution regime for FMIs, addressing Australia-specific issues (vertically-integrated exchange groups, dominance of a few domestic and global banks, diversity and capacity of private liquidity providers).

### AML / CFT regime progress and further steps
- Progress since 2015 FATF assessment:
  - Strengthened aspects of AML/CFT legislative framework.
  - Groundwork to expand AML/CFT regime to cover all designated non-financial businesses and professions (DNFBPs).
  - Established “Fintel Alliance” public-private partnership to improve sharing of financial intelligence.
  - AUSTRAC refined supervisory model, reorganized teams, focused on higher ML/TF risk firms, introduced system to assess responses to self-reported breaches, obtained record financial penalties, and collaborated on ML/TF risk assessments.
- Remaining needs ahead of next FATF assessment planned for 2020:
  - Expand AML/CFT regime to cover all DNFBPs, including lawyers, real estate agents, and trust and company service providers.
  - Planned increases in AUSTRAC staffing during 2018-2019 could help strengthen onsite supervision of banks and high-risk remitters, especially on customer due diligence.
  - Make more frequent use of formal enforcement actions and strengthen data collection.

*Source: 1ausea2019007 - 30.      In recent years, the authorities have taken steps to strengthen banks’ lending*

### 49.      The recently enacted Crisis Management Act confers new powers on APRA to resolve

### 1ausea2019007 - 49.      The recently enacted Crisis Management Act confers new powers on APRA to resolve

### New powers under the Crisis Management Act
- The Crisis Management Act confers new powers on APRA to resolve financial institutions (banks and insurance companies) in distress.
- Strengthened APRA powers include: conglomerate groups, statutory management, directions, transfer, conversion and write-off of capital instruments, stays, foreign branches, the Financial Claims Scheme (FCS), wind-up, and resolution planning.
- Specific expansions:
  - statutory management tool can be applied in a group context;
  - new statutory management powers in relation to foreign-owned ADIs;
  - widened scope of the directions powers;
  - broadened use of the FCS to finance business transfers.
- APRA has started to translate the new powers into prudential standards and internal work processes.
- Reference notes in the source: 37; 38.

### Recovery planning developments and expectations
- APRA progress:
  - Developed recovery planning requirements for the banking industry, extending these from large to smaller banks.
  - Provided guidance to ADIs on recovery planning suggesting regular tests focusing on internal escalation processes, functioning of crisis management teams, and determination of communication plans.
  - Conducted a thematic review and benchmarking exercise of recovery plans submitted by the larger ADIs.
  - Provided entity-specific feedback outlining key areas requiring improvement and asked for revised submissions to be updated on an annual cycle.
  - Plans to extend recovery planning work to include foreign-owned ADI subsidiaries and branches.
- Recommendations for integration and testing:
  - Recovery planning should be better integrated within the risk management framework and operational testing exercises of the largest banks.
  - Recovery plans should be consistent and integrated with stress testing and capital and liquidity planning exercises.
  - APRA should develop a guiding framework for a set of triggers and early warning indicators to highlight when recovery options might need to be activated.
  - Regular tests of recovery plans should be undertaken.
  - APRA’s pilot resolution planning project and resolvability assessment should feed into a framework for establishing credible resolution plans to resolve a failed or failing institution.
  - Recovery and resolution planning requirements for financial conglomerates should be applied on a group basis.

### Operationalization gaps and cross-border coordination
- Remaining implementation tasks:
  - Steps to operationalize resolution tools still need to be completed.
  - Mechanics of bridge bank and asset separation tools are established, but modalities to finance relevant operations should be clarified.
  - Resolution tools are untested in Australia; maintain efforts to conduct intra- and cross-institutional crisis simulation tests.
- Cross-border cooperation:
  - Given significant interconnectedness and potential spill-over effects, Australian authorities should enhance cooperation with New Zealand financial regulators within the Trans-Tasman Council of Banking Supervisors (TTBC).
  - Advance focus from generic resolution issues to formulation of specific resolution plans, including funding strategies.
  - Consider introducing a statutory recognition of action taken by foreign regulators.

### Resolving systemically important banks and investor protections
- Key points:
  - More needs to be done to ensure authorities are well-positioned to resolve a systemically important bank or address a systemic banking crisis.
  - Important to ensure banks bear the costs of their own failures through an increase in their loss-absorbing capacity (in the form of contractual bail-in instruments).
  - Resolution authority should be able, upon entry into resolution, to convert or write down any contingent convertible or contractual bail-in instruments whose terms had not been triggered prior to entry into resolution.
  - To facilitate effective resolution, retail investors’ exposure to complex loss-absorbing instruments should be subject to strong investor protection.
- Reference note in the source: 39.

### Deposit insurance, statutory bail-in, and “no creditor worse off”
- Recommendations:
  - Introduce an ex-ante funded deposit insurance scheme (FCS) and a statutory bail-in regime, based on best international practice.
  - Clarify the goals and operational modalities of the Financial System Stability Special Account, the standing budgetary authorization for financial crisis management purposes.
  - Add the “no creditor worse off” regime as an additional legal safeguard to the bank resolution framework.

### Emergency Liquidity Assistance (ELA) framework
- RBA recommendations:
  - Formalize the Emergency Liquidity Assistance (ELA) framework and draw up clearly defined conditions for it.
  - ELA framework should include, inter alia:
    - modalities for solvency assessment (moving from point-in-time to a forward-looking assessment of viability);
    - applying for and receiving government indemnity;
    - decisions on whether the RBA can lend to an undercapitalized bank in a recovery or possibly in a resolution mode.
  - The framework should consider applicable risk control measures for lending to banks beyond the CLF.
  - IMF recommendation: ELA should only be provided to solvent financial institutions on a temporary basis against adequate collateral.

*Source: 1ausea2019007 - 49. The recently enacted Crisis Management Act confers new powers on APRA to resolve*

### 3. Sharp

### 3. Sharp tightening of global financial conditions

### Shock description and scenario drivers
- Shock features:
  - Spike in risk premiums, disorderly correction in asset prices, heightened volatility, and a sharp depreciation of the Australian dollar.
  - Tighter financial conditions leading to capital outflows from Australia and potential pressure on government bond yields.
- Adverse Scenario drivers (three major drivers):
  - Shock 1: Significant slowdown in China and weak growth in advanced economies.
  - Shock 2: Tightening of global financial conditions due to an abrupt change in risk appetite.
  - Shock 3: A sharp housing market correction.
- Under the Adverse Scenario (three-year horizon, 2018–2020):
  - Annual GDP growth shocks of -5.5 percent, -3.6 percent, and -1.3 percent (V-shaped path).
  - Cumulative deviation of real GDP growth of close to 9 percentage points over the first two years compared to the Baseline path (more than 4 standard deviations).
  - Unemployment shocks of 3.5 percent, 4.7 percent, and 4.7 percent.
  - Cumulative house price decline reaches 31 percent.
  - AU$ depreciates by 25 percent in the first year; cumulative depreciation of 16 percent at the end of the third year.

### Impact on banks and financial intermediation
- High-level impacts:
  - Market risk via repricing of banks’ financial assets and impact of a weaker Australian dollar on net open positions.
  - Higher funding costs and potential capital outflows reducing wholesale funding available from abroad.
  - Pressure on government bond yields.
- Medium-level impacts:
  - Higher credit losses exacerbating funding-cost effects.
  - Banks’ asset quality deterioration as customers face rising borrowing rates on variable-interest rate loans (the bulk of banks’ lending).
  - Significant decline in wholesale funding available from abroad possible.
- Behavioral assumptions in stress testing:
  - Passive balance sheet: balance sheet growth equals overall credit growth linked to nominal GDP growth (with a 0-floor); balance sheet composition constant; banks build capital only through retained earnings; maturing capital instruments not renewed.
  - Dividends paid by banks that remain adequately capitalized; dividend payout ratio assumed to be 50 percent.

### Stress testing approach and metrics (Banking Sector STeM)
- Perimeter and data:
  - Largest 10 banks (largest five banks subject to the Major Bank Levy and five mid-sized banks) holding approximately 88 percent of domestic banking sector assets.
  - Data Source: Supervisory and publicly-available data; Baseline date: End-2017; Scope: Level 2 consolidated data.
- Methodologies:
  - Balance sheet-based approach for solvency tests.
  - Satellite models for PDs, LGDs, NPL ratio, and provisioning ratio.
  - Market losses on debt instruments via haircuts based on modified duration.
  - Cash-flow based liquidity stress test using maturity buckets; Basel III-LCR and NSFR ratios; analyses separately for AUD and USD.
  - Interbank contagion models: Espinosa-Vega and Solé (2010) balance sheet-based and cross-border network models; Diebold and Yilmaz (2014) market price-based spillover model.
- Reporting outputs:
  - System-wide capital shortfall.
  - Number of banks and percentage of banking system assets falling below capital hurdle.
  - System-wide liquidity gaps and survival period by bank.
  - Network analyses: number of undercapitalized and failed institutions, evolution and direction of spillovers.

### Key calibrated shocks and sensitivity analyses
- Tail shocks and sizing:
  - Scenario-based tests include domestic macrofinancial and global variables (U.S. and China GDP, USD interest rates, commodity prices).
  - Baseline uses April 2018 WEO projections; Adverse simulated with IMF’s Flexible System of Global Models.
  - Simulated run-off rates benchmarked against LCR/NSFR assumptions; bank run and dry up of wholesale funding markets modeled with haircuts to liquid assets.
- Sensitivity analyses:
  - Interest rate risk.
  - Spread increase for securities portfolios.
  - Concentration risk.

### Selected economic and financial indicators (highlights from Table 4 and related tables)
- Real GDP (annual percent change): 2014 2.6 2015 2.5 2016 2.8 2017 2.4 2018 3.0 2019 Est. 2.7 2020 2.6 2021 2.6 2022 2.6 2023 2.6 2024 2.6
- Unemployment (percent of labor force): 2014 6.1 2015 6.1 2016 5.7 2017 5.6 2018 5.3 2019 Est. 4.8 2020 4.8 2021 4.8 2022 4.8 2023 4.8 2024 4.8
- Consumer prices (avg): 2014 2.5 2015 1.5 2016 1.3 2017 2.0 2018 2.0 2019 Est. 2.1 2020 2.4 2021 2.5 2022 2.5 2023 2.5 2024 2.5
- Reserve Bank of Australia cash rate (percent, avg): 2014 2.5 2015 2.1 2016 1.7 2017 1.5 2018 1.5 2019 Est. 1.5 2020 1.8 2021 2.3 2022 2.7 2023 3.2 2024 3.5
- Household debt (percent of disposable income) 1/: 2014 167 2015 173 2016 180 2017 187 2018 188 2019 Est. 176 2020 174 2021 171 2022 169 2023 167 2024 165
- House price index: 2014 120 2015 131 2016 141 2017 148 2018 141 2019 Est. 135 2020 136 2021 137 2022 141 2023 144 2024 148
- Interest payments (percent of disposable income): 2014 8.9 2015 8.8 2016 8.6 2017 8.9 2018 9.7 2019 Est. 9.2 2020 9.9 2021 10.6 2022 11.3 2023 11.9 2024 11.8
- Current account (percent of GDP): 2014 -3.1 2015 -4.6 2016 -3.3 2017 -2.6 2018 -2.4 2019 Est. -2.7 2020 -2.9 2021 -3.0 2022 -3.1 2023 -3.0 2024 -2.8
- Nominal GDP (bn A$): 2014 1,615 2015 1,641 2016 1,704 2017 1,808 2018 1,894 2019 Est. 1,965 2020 2,059 2021 2,158 2022 2,265 2023 2,385 2024 2,506
- Gross debt (general government, percent of GDP): 2014 34.1 2015 37.8 2016 40.5 2017 40.7 2018 40.7 2019 Est. 41.4 2020 40.8 2021 40.1 2022 39.3 2023 37.9 2024 36.7

### Financial system structure and selected balance-sheet metrics (Table 5 & Table 6 highlights)
- Financial system (2017, Table 5):
  - Total financial system assets: 7,776 billions AUD (5,259 billions USD) — Percent of GDP 431.
  - Authorized Deposit Institutions: Number 141; Assets 4,585 billions AUD (3,527 billions USD) — Percent of GDP 254.6.
  - Major Domestic Banks: Number 4; Assets 3,524 billions AUD (2,710 billions USD) — Percent of GDP 195.7.
  - Pension funds: Number 23; Assets 382 billions AUD (2,129 billions USD) — Percent of GDP 118.2.
  - Nominal GDP (billions, AUD): 1,801. Exchange rate (AUD / US dollar) 1.3.
- Banking sector financial soundness indicators (selected, Table 6):
  - Regulatory capital to risk-weighted assets: 2007 10.1 2008 11.3 2009 11.9 2010 11.4 2011 11.6 2012 11.9 2013 11.6 2014 12.2 2015 13.8 2016 13.6 2017 14.5 2018 Q1 14.6
  - Regulatory tier 1 capital to risk-weighted assets: 2009 7.1 2010 8.4 2011 9.3 2012 9.6 2013 10.2 2014 10.6 2015 10.2 2016 10.6 2017 11.8 2018 Q1 11.4 2018 Q1 12.4 (note table formatting: final values recorded as 12.4)
  - Non-performing loans to total gross loans: 2007 0.6 2008 1.4 2009 2.0 2010 2.1 2011 2.0 2012 1.7 2013 1.4 2014 1.0 2015 0.9 2016 1.0 2017 0.9 2018 Q1 0.9
  - Total provisions to non performing loans: 2007 41.1 2008 49.2 2009 60.1 2010 66.0 2011 64.1 2012 66.2 2013 62.2 2014 54.9 2015 48.9 2016 48.9 2017 43.4 2018 Q1 41.3
  - Liquid assets to total assets: 2007 12.1 2008 13.8 2009 14.4 2010 15.5 2011 16.0 2012 17.0 2013 17.1 2014 16.5 2015 17.0 2016 17.6 2017 17.7 2018 Q1 17.4
  - Loans to deposits: 2007 115.3 2008 115.2 2009 122.2 2010 119.0 2011 117.9 2012 115.8 2013 114.9 2014 114.9 2015 118.9 2016 118.2 2017 114.6 2018 Q1 116.5
  - Foreign-Currency-Denominated Liabilities to Total Liabilities: 2007 17.2 2008 20.1 2009 20.1 2010 19.1 2011 20.8 2012 19.8 2013 20.3 2014 21.1 2015 23.3 2016 21.8 2017 20.1 2018 Q1 20.8
  - Housing Index: 2007 86 2008 89.8 2009 92.8 2010 104.1 2011 101.3 2012 100.6 2013 107.5 2014 117.6 2015 129 2016 137.1 2017 149.8 2018 Q1 150.6

### Status of key FSAP 2012 recommendations (Table 7)
- Systemic Stability:
  - Develop a top down stress testing framework and publish results in the Financial Stability Review (RBA): Done, although framework remains under development. (October 2017 FSR)
  - Introduce higher loss absorbency (HLA) for systemic banks (APRA): Done. D-SIBs surcharge of 1.0 per cent of risk-weighted assets (applied from January 2016). APRA suggested increasing CET1 to a minimum of 10.5 percent by 2021.
- Financial Sector Oversight:
  - Intensify on-site supervision of bank liquidity and upgrade daily liquidity reporting requirements (APRA): Done. Daily liquidity reporting effective April 2015; reporting accuracy verified.
  - Improve conduct of business supervision for insurance companies (Treasury): Done.
  - Ensure sufficiency and stability of ASIC core funding (Treasury): Implementation uncertain; ASIC funding supplemented by a levy; government announced additional funding of A$70.1 million over two years from 2018-2019.
  - Extend risk-based capital requirements, large exposure rules, and reporting requirements for licensed providers of financial services (Treasury/ASIC): Not accepted by authorities.
- Crisis Management:
  - Re-evaluate ex-ante funding for the Financial Claims Scheme (FCS) (Treasury/CFR): Not accepted.
  - Ensure implementation of single customer view (SCV) for ADIs (APRA): Done (completed by January 2014).
  - Conduct frequent crisis simulations and resolution testing (APRA/CFR): Done; frequent simulations and cross-border tests with New Zealand supervisors under the Trans-Tasman Council.

*Source: 1ausea2019007 - 3. Sharp, IMF.*

### Appendix II. Key Macroprudential Policy Measures, 2014-18

### Appendix II. Key Macroprudential Policy Measures, 2014-18

### Chronology of major macroprudential measures (selected)
- Dec 2014 — APRA: Introduced Prudential Practice Guide (APG223) outlining expectations for sound mortgage lending practices:
  - Speed limit curtailing annual growth in a bank's investor housing lending to 10 percent;
  - Serviceability assessments for new mortgage lending to include interest rate buffers of at least 2 percentage points above the effective variable rate applied for the term of the loan, and a minimum floor assessment rate of at least 7 percent to allow borrowers to accommodate future increases in interest rates;
  - Supervisors to be alert to high levels of higher-risk mortgage lending with:
    - high LVR and/or loan-to-income ratio;
    - owner-occupier loans with lengthy interest-only periods.
- Dec 2014 — ASIC: Commenced review of interest-only home loans and published Report 445; all 11 participating lenders agreed to change practices in line with ASIC’s recommendations.
- 2015 — APRA: Requested larger ADIs to complete a Hypothetical Borrower Exercise (HBE) using policies as at December 31, 2014; a second HBE in late 2015 showed ADIs least conservative in December 2014 generally reported a significant drop in calculated net income surplus using September 2015 policies.
- Jul 2015 — APRA: Announced increase in capital adequacy requirements for residential mortgage exposures for ADIs using the IRB approach, effective July 1, 2016:
  - Increase of average risk weights to at least 25 percent from about 16 percent;
  - Equivalent of increasing minimum capital requirements for major banks by approximately 80 basis points.
- Jan 2016 — APRA: Incorporated the Countercyclical capital buffer (Basel III) into capital standards for locally incorporated ADIs; determined Australian jurisdictional countercyclical capital buffer from January 1, 2016 will be zero percent of risk-weighted assets.
- Oct 2016 — APRA: Released for consultation revised APG 223 to incorporate measures announced or communicated since 2014.
- 2016 — APRA: Conducted a thematic review of commercial property lending.
- 2016 — ASIC: Published Report 493 reviewing lending practices of 11 large mortgage brokers.
- Mar 2017 — APRA: Introduced specific measures:
  - Limit flow of new interest-only lending to 30 percent of new residential mortgage lending;
  - Strict internal limits on volume of interest-only lending at LVRs above 80 percent;
  - Strong scrutiny and justification of interest-only lending at an LVR above 90 percent;
  - Lending to investors to remain comfortably below the 10 percent growth benchmark (first introduced in 2014); ADI operating in excess will prompt immediate review of capital adequacy;
  - Serviceability metrics, including interest rate and net income buffers, to be set at appropriate levels for current conditions;
  - Restraint on lending growth in higher risk segments (high LTI loans, high LVR loans, very long-term loans).
- 2017 — APRA: Targeted review of mortgage origination controls—Large ADIs.
- Apr 2017 — ASIC: Announced findings of review of eight lenders regarding inquiry into consumers’ living expenses and commenced project examining whether lenders and brokers recommend interest-only loans appropriately.
- 2018 — APRA: Targeted review of mortgage origination controls—Small ADIs.
- Apr 2018 — APRA: Conditions to remove the 10 percent investment lending growth benchmark from July 1, 2018 for ADIs operating below it for at least past 6 months and with Board assurance; required elements for such ADIs:
  - Interest rate buffers comfortably above 2 percentage points over the loan product rate, and interest rate floors comfortably above 7 percent;
  - Application of these buffers and floors to both a borrower’s new and existing debt commitments, using sufficiently conservative proxies where necessary;
  - Discounts on uncertain and variable income, with haircuts of at least 20 percent for most types of non-salary income and expected rental income;
  - For interest-only loans, assessment of serviceability for the period over which principal and interest repayments apply (i.e., excluding the interest-only term);
  - Prudently managing overrides to lending policies, with Board-set risk tolerances on extent of exceptions to serviceability policy (negative serviceability) and serviceability verification waivers;
  - Developing internal risk appetite limits on proportion of new lending at very high debt to income levels (where debt is greater than six times a borrower’s income), and policy limits on maximum debt-to-income levels for individual borrowers.

### Supervisory reviews, exercises, and thematic work
- Hypothetical Borrower Exercises (HBEs) in 2015 used to assess and compare lending standards across ADIs, revealing material reductions in calculated net income surplus at previously less conservative ADIs.
- Thematic reviews:
  - 2016: Commercial property lending thematic review by APRA.
  - 2017–2018: Targeted reviews of mortgage origination controls for large and small ADIs.
- ASIC thematic reviews and reports:
  - Report 445 (Dec 2014): Interest-only home loans review leading to practice changes by 11 lenders.
  - Report 493 (2016): Review of lending practices of 11 large mortgage brokers.
  - 2017 reviews on inquiry into living expenses and appropriate recommendation of interest-only loans.

### Key regulatory calibration and quantitative thresholds
- Investor housing lending annual growth speed limit: 10 percent (Dec 2014).
- Interest rate buffer requirement: at least 2 percentage points above effective variable rate (Dec 2014; reaffirmed Apr 2018 as “comfortably above 2 percentage points”).
- Minimum floor assessment rate: at least 7 percent (Dec 2014; reaffirmed Apr 2018 as “comfortably above 7 percent”).
- Restriction on interest-only lending: cap new interest-only lending at 30 percent of new residential mortgage lending (Mar 2017).
- Internal limits and scrutiny at LVR thresholds: above 80 percent and especially above 90 percent (Mar 2017).
- Investor lending growth benchmark: 10 percent (introduced 2014; continued monitoring; conditional removal from Jul 1, 2018 under specified controls).
- IRB risk-weight increase for residential mortgages: to at least 25 percent from about 16 percent (effective Jul 1, 2016).
- Equivalent increase in minimum capital requirements for major banks: approximately 80 basis points (Jul 2015).
- Countercyclical capital buffer set at zero percent of risk-weighted assets from Jan 1, 2016.
- Income haircut for uncertain/variable income and expected rental income: at least 20 percent (Apr 2018).
- Definition of “very high” debt-to-income: debt greater than six times a borrower’s income (Apr 2018).

### Structural and market context (selected statistics)
- Banks and other ADIs represent nearly 67.6 percent of all APRA-regulated financial system assets, equal to around 2.3 times the level of nominal GDP (as of March 2018 context).
- Banks accounted for 98.8 percent of ADI assets in March 2018.
- Australia’s four major domestic banks accounted for 76.4 percent of total ADI assets in March 2018.
- Mid-sized and other small Australian owned banks: 9.8 percent of total ADI assets.
- Foreign-owned banks (branches and subsidiaries): 12.6 percent of total ADI assets.
- Building societies and credit unions: 1.2 percent of total ADI assets (share gradually declining).

*Source: Appendix II. Key Macroprudential Policy Measures, 2014-18; Appendix III excerpts — IMF country documents as provided.*

### 19.      In October 2008, the Australian Government established the Financial Claims Scheme

### 19.      In October 2008, the Australian Government established the Financial Claims Scheme

### Financial Claims Scheme (FCS)
- The FCS was established in October 2008 for ADIs and general insurers.
- The FCS is post-funded.
- The FCS used to apply to deposit balances up to A$1 million per account-holder per ADI.
- Based on the CFR’s recommendation, the Government reduced the FCS limit to A$250,000 from February 1, 2012.

### Company disclosure and competition framework
- Disclosure requirements are contained in the Corporations Act; listed companies must also comply with supplementary requirements in the relevant listing rules.
- Each financial year, entities subject to disclosure requirements must prepare a financial report and a directors’ report (containing information about operations, activities, and a range of other matters).
- Similar requirements exist for half-year financial and directors’ reports.
- Australian competition law is contained in the Competition and Consumer Act and applies to all industries, including the financial sector.
- The Australian Competition and Consumer Commission (ACCC) is responsible for enforcing prohibitions on anti-competitive conduct in the Competition and Consumer Act.

### E. Main Findings — overview of APRA reforms and focus
- Since the previous FSAP, APRA has implemented reforms to enhance resilience of the Australian financial system.
- APRA has implemented key elements of the international regulatory reform agenda, at times going beyond minimum standards.
- APRA’s focus areas include:
  - strengthening the capital framework,
  - implementing Basel III liquidity standards,
  - reinforcing sound mortgage lending standards,
  - improving governance and accountability,
  - strengthening crisis management and preparedness.
- Other enacted reforms include risk management and governance measures and introducing a phased approach to licensing.
- APRA is developing a new risk and data analytics function but needs to continue enhancing resources and skillset to match evolving banking services and risks.
- APRA has increasingly focused risk-based supervisory activities on residential mortgages and commercial real estate lending, among other risk areas.

### Compliance with BCPs and supervisory enhancements
- APRA has achieved a high degree of compliance with the BCPs.
- The revised BCP methodology raised standards for achieving supervisory objectives; APRA has demonstrated progress in strengthening supervisory effectiveness.
- Notable supervisory work includes liquidity and credit risk supervision and enhancement of banks’ capital adequacy requirements, including planned implementation of an “unquestionably strong” capital framework in line with the recommendations of the 2014 Financial System Inquiry (FSI).
- APRA could further enhance supervision by:
  - performing periodic more comprehensive assessments of banks’ risk management and governance frameworks;
  - incorporating banks’ management of non-financial risks in its supervisory assessment;
  - applying enforcement measures in a more active way.

### Responsibilities, Objectives, Powers, Independence (CP1-2)
- APRA has broad powers and clear responsibilities underpinned mainly in the Banking Act and the APRA Act.
- The APRA Act requires balancing financial stability with other objectives (financial safety, efficiency, competition, contestability and competitive neutrality); clarifying the primacy of financial stability may be useful.
- APRA can set and enforce prudential standards, but those standards can be disallowed by the Parliament, which weakens standard-setting powers despite no such disallowance to date.
- Governance and accountability:
  - APRA operates under a robust governance framework and solid accountability mechanisms,
  - internal risk management and internal audit committees have a majority of independent members,
  - APRA is subject to a strong accountability framework to the Parliament, the government, and the general public.
- Potential constraints on independence:
  - Ministerial power to issue directions to APRA about policies it should pursue is a potential concern even if unused to date.
  - The APRA Act does not require public disclosure of the reasons for removal of an APRA Member.
  - The statement of expectations (SOE) and APRA’s reply in its statement of intent (SOI) present government priorities; clarifying the SOE objective to avoid conflict with APRA’s primary financial stability mandate may be useful.
- Budgetary and staffing constraints:
  - APRA is subject to “efficiency dividends”; additional budget proposals need Government approval.
  - Uncertainty over medium-term budget may hinder resource planning.
  - Constraints on staff employment and remuneration (e.g., APS workplace bargaining policy) limit APRA’s ability to attract and retain specialized skills for overseeing evolving risks, including digital business models and cyber risk.
  - Some remuneration levers and individual flexibility arrangements exist under APRA’s enterprise agreement, but policy challenges remain for attracting highly specialized staff.

### Licensing, Change in Control, and Acquisitions (CP 4-7)
- APRA has a very thorough licensing framework; licensing assessments follow criteria consistent with ongoing supervision requirements and review proposed ADI strategy, financial viability, business plan, owner and management suitability, governance, and risk management frameworks.
- Phased licensing regime:
  - APRA introduced a phased (restricted) licensing regime to open the way for new market entrants with digitally focused business models.
  - Restricted licensees face operational limitations and must have a two-year conversion strategy (to become full ADIs) and an exit strategy (with some resolution funds).
  - Recommendation: APRA should adopt prudence in implementing this regime and further develop staff capacity and skills to oversee new digital services.
- Change in significant ownership:
  - The Financial Sector Shareholdings Act (FSSA) gives the Treasurer power to decide on changes in ownership stakes of more than 15 percent.
  - Treasurer has delegated APRA to approve changes in significant ownership for banks with assets of less than A$ 1 billion, but this is a partial delegation and can be withdrawn.
  - Approval criteria are based on “national interest” considerations which are not defined in the FSSA and may not adequately consider fitness, propriety and suitability of significant shareholders.
  - For banks with assets exceeding A$1 billion, the Treasurer practically seeks APRA’s advice on prudential concerns, but such advice is not binding.

### Supervisory Cooperation and Cross Border Supervision (CP3,12,13)
- Domestic cooperation:
  - APRA has good interaction with domestic authorities, notably the RBA, through forums including the CFR.
  - Cooperation with ASIC has intensified; deeper interaction would enhance APRA’s understanding of risks, particularly related to the Banking Executive Accountability Regime (BEAR).
  - Cooperation with AUSTRAC has been limited and primarily focused on high-level issues; recommendation to elevate operational-level cooperation for substantive entity-specific discussions.
- International cooperation:
  - APRA has close working relationships with foreign regulators, particularly RBNZ, reflecting significant cross-border operations in New Zealand.
  - APRA conducts onsite reviews for major banks’ subsidiaries in New Zealand and maintains contacts with other relevant regulators.
  - APRA has conducted supervisory colleges for two banks; the last was about three years ago—active supervisory colleges may benefit Australian banks with significant cross-border presence.
  - Recommendation: implement plan to develop a resolution planning framework and coordinate with foreign authorities to develop resolution plans for major cross-border banking groups.
- Consolidated supervision:
  - APRA’s consolidated supervisory approach collects prudential standards and financial data on a consolidated basis.
  - Introduction of a governance and risk management framework for conglomerates is positive.
  - Recommendation: enhance understanding and review of risks from non-banking activities in wider financial groups and be prepared to act as needed.

### Supervisory Approach (CP 8-11)
- APRA’s supervisory premise: responsibility rests with banks’ boards and management to operate prudently and comply with laws and prudential standards.
- APRA employs formal requirements and supervisory processes and tools to assess firms, with appropriate enforcement authorities.
- Challenges and recommendations:
  - Balance reliance on firms’ attestations/reporting versus supervisory verification of governance, risk management and control effectiveness.
  - APRA’s risk-focused approach is a strong foundation; however, oversight could benefit from greater focus on the largest firms and periodic “end-to-end” reviews of systems and practices.
  - Need to develop further analysis of emerging system-wide risks and continue to refine banks’ reporting requirements.
  - Balance between maintaining good relationships with firms and willingness to take strong supervisory actions: scope exists to escalate corrective actions more quickly and use formal corrective actions (e.g., directions) more actively if firms do not cooperate.

### Corporate Governance and Internal Audit (CP 14, 26)
- APRA sets appropriate bank governance requirements.
- Assessments of board and senior management effectiveness could be better informed by findings from reviews of risk management and controls and should weigh these more heavily in overall firm ratings.
- PAIRS assessment process covers necessary areas but may obscure root causes or ultimate accountability, potentially weakening articulation of expectations given APRA’s emphasis on board and senior management roles.
- Recommendations:
  - Better incorporate findings from AUSTRAC and ASIC assessments (AML/CTF and conduct issues) into APRA’s governance assessments where material.
  - Strengthen emphasis on assessing the internal audit function to inform assessments of control processes:
    - APRA does not collate supervisory conclusions into a formal risk assessment of internal audit.
    - APRA has not performed an in-depth evaluation of internal audit effectiveness across major banks for a number of years.
    - Given boards’ responsibilities, greater emphasis on internal audit effectiveness is warranted.
    - Prudential standards should more comprehensively outline criteria and requirements for an effective internal control environment and internal audit function.

### Capital (CP 16)
- APRA applies a conservative regulatory capital regime; ADIs exhibit relatively strong regulatory capital ratios.
- Recommendation: increase focus on processes supporting capital planning by undertaking more in-depth reviews of inputs into and controls around ICAAPs and stress testing programs.
- Recent move to “unquestionably strong” capital benchmarks on top of conservative use of Basel risk-based standards is positive for strengthening industry capital.

### Risk Management (CP 17-25)
- CPS 220: APRA issued an integrated risk management standard requiring regular attestations and reporting of effectiveness by board and management relative to firm size and risk profile—positive development.
- Supervision emphasizes board responsibilities and is supported by a solid, if understaffed in some areas, supervision program across major risk categories.
- Increased use of ‘thematic reviews’ across groups of firms is a good practice and should continue for largest firms.
- Credit risk management:
  - Supervisors increasingly assess underwriting practices and serviceability assessments.
  - Recommendation: continue reviews and perform more thorough periodic analysis of banks’ credit risk management frameworks, particularly for major banks.
  - Current risk reviews on concentration risk should be enhanced to examine impact of concentration in types of collateral, particularly real estate.
  - APRA should proceed with plans to revise prudential standards on credit quality (treatment of problem assets) and related parties to align further with international standards.
- Liquidity risk oversight:
  - APRA established a team of risk specialists for liquidity oversight and implemented the LCR and NSFR requirements for major banks.
  - The October 2017 RCAP confirmed that Australia’s Basel III LCR is overall compliant with Basel requirements.
  - Prudential framework provides thorough requirements and guidance on liquidity risk management.

### Disclosures and Transparency (CP 27-28)
- (Content unit ends at heading; detailed findings under Disclosures and Transparency not provided in the supplied content.)

*IMF staff report excerpt as provided in the supplied content.*

### 45.      APRA regulations and the Corporations Act require significant disclosures that enable

### 45.      APRA regulations and the Corporations Act require significant disclosures that enable

### Disclosures, reporting, and audit framework
- APRA requires a wide range of Pillar 3 disclosures including quantitative and qualitative elements.
- Banking statistics are made available to the public on a monthly and quarterly basis.
- All Australian incorporated banks are required to issue audited financial reports to the public on an annual and half-yearly basis.
- ASIC reviews external audits, including with respect to asset valuations, and carries out ongoing surveillance of financial reporting.

### Anti–money laundering and counter-terrorism financing (Abuse of Financial Services — CP 29)
- AUSTRAC has the authorities by law and rule, and the supporting processes needed to oversee money laundering and anti-terrorism financing.
- Significant reliance on firms self-identifying and reporting weaknesses has not always proved effective.
- Recent events revealed that some banks’ processes for ensuring compliance were not working as reported, resulting in failures to comply with rules and laws.
- Recommendation: AUSTRAC should consider steps to increase confidence in firms’ internal reporting, including taking swift and formal action when it discovers banks’ control processes for ensuring compliance are missing key areas.
- Suggested approach: conduct an end-to-end thematic review of these processes at the major banks on a periodic basis.

### Summary compliance with the Basel Core Principles (Appendix Table 1) — major findings by principle
- Principle 1 (Responsibilities, objectives and powers)
  - APRA has broad powers and clear responsibilities underpinned mainly in the Banking Act and APRA Act.
  - APRA’s objective of promoting financial system stability needs to be balanced with objectives such as financial safety, efficiency, competition, contestability, and competitive neutrality.
  - Parliamentary disallowance can block prudential standards (has not occurred in practice) and could, in extreme cases, limit APRA’s ability to achieve primary objectives.
- Principle 2 (Independence, accountability, resourcing and legal protection)
  - The APRA Act grants the minister power to give APRA a written direction about policies or priorities; this power has never been exercised but could limit independence.
  - The APRA Act does not require public disclosure of the reasons for removal of an APRA Member if it happens in practice.
  - APRA is funded primarily by industry levies; the budget is set annually by the government after consideration of funding requests by APRA members.
  - Constraints include the need to submit proposals for funding increases and the government-imposed “efficiency dividend”.
  - Since 2014, APRA’s employment framework has been subject to the APS Workplace Bargaining Policy, which imposes an annual cap on remuneration increases and requires periodic approval every three years; this increasingly limits retention and attraction of highly specialized skills (e.g., cyber risk and advanced risk analytics).
- Principle 3 (Cooperation and collaboration)
  - APRA has cooperation agreements with various domestic and foreign supervisors and a good framework for exchanging confidential information.
  - Cooperation with AUSTRAC has improved but there is scope to significantly step it up.
- Principle 4 (Permissible activities)
  - The Banking Law defines “banking business”; activities of taking deposits are reserved to licensed ADIs, though some exemptions can be granted.
  - Since the 2012 FSAP, operating conditions for exempted entities have tightened and their size has decreased.
- Principle 5 (Licensing criteria)
  - APRA has a very thorough licensing framework and process consistent with ongoing supervision requirements.
  - The new restricted licensing regime increases competition and eases market entry for firms with new business models; APRA has taken measures to limit potential financial stability issues.
  - APRA ensures proposed ADIs have capacity to meet prudential capital requirements, with initial capital of restricted ADI taken as a minimum.
- Principle 6 (Transfer of significant ownership)
  - APRA’s power to review, reject, and impose prudential conditions on proposals to transfer significant ownership or controlling interests in ADIs is very limited.
  - The FSSA gives the Treasurer power to approve changes in ownership of more than 15 percent, decided on “national interest” considerations.
  - The Treasurer has delegated powers to APRA for banks with assets of less than A$1 billion; this delegation can be withdrawn and does not provide APRA adequate powers over major shareholders, particularly for larger ADIs.
  - FSSA provides no definition of “national interest”; APRA does not receive regular reporting about major shareholders to keep updated on actual and ultimate main shareholders.
- Principle 7 (Major acquisitions)
  - Prudential Standard 222 requires prior supervisory approval or prior notification for certain acquisitions and investments.
  - Regulations and prudential standards do not exactly define assessment criteria, but APRA’s internal guidelines provide detailed criteria and considerations.
- Principle 8 (Supervisory approach)
  - APRA’s supervisory approach identifies significant industry and individual bank risks and sets prudential standards on governance, risk management, and controls.
  - Combination of onsite and offsite reviews, input from risk specialists and RDA Division, and frontline supervisors provides broad perspectives for supervisory direction and strategy.
  - APRA requires various periodic reporting from firms on effectiveness of their processes, placing importance on firms’ self-reporting strength.
  - More in-depth periodic reviews of key control processes are recommended to complement self-reporting and increase confidence.
  - A supervisory regime for assessment of resolvability is a work in progress; APRA is designing a supervisory regime for resolution planning and working closely with other agencies.
- Principle 9 (Supervisory techniques and tools)
  - APRA has a good set of supervisory tools; staff are knowledgeable and supervision planning is generally well executed.
  - Written communications clearly articulate issues; frequent engagement provides clarity to firms on issues and high-level expectations.
  - The PAIRS assessment regime covers the full expected spectrum and is supported by guidance; however, mechanically rolling underlying PAIRS categories into one overarching rating may obscure important underlying issues.
  - Relatively low weightings for board and senior management inputs in overall rating appear out of line with emphasis on their roles and responsibilities.
- Principle 10 (Supervisory reporting)
  - APRA has appropriate authority to collect required supervisory data.
  - Prudential and statistical reporting provide extensive information on risk exposures, operating performance, and financial condition.
  - APRA is working on a new system for collecting data to deepen supervisory analysis and plans to increase use of quantitative analyses.
  - Extensive use of ad hoc data gathering can create consistency and data quality issues from firms.
- Principle 11 (Corrective and sanctioning powers)
  - APRA has a broad range of tools from supervisory requirements to revoking a banking license and resolving a bank.
  - Preferred approach is early identification of concerns and working with institutions to address them before a breach occurs, including referral to APRA’s Enforcement and Escalation Committee watchlist and increasing supervisory intensity.
- Principle 12 (Consolidated supervision)
  - APRA’s consolidated supervisory approach is well underpinned; prudential standards and financial data are collected on a consolidated basis.
  - APRA reviews oversight of banks’ foreign operations and conducts prudential reviews and visits covering main cross-border activities of large Australian banking groups.
- Principle 13 (Home-host relationships)
  - APRA has developed a good cross-border supervisory framework based on MOUs and close working relationships, particularly with the RBNZ.
  - APRA performs onsite reviews for operations of large Australian banks in New Zealand.
  - No recent supervisory college was organized due to focus on bilateral work and nature of cross-border risks.
  - APRA has not established a recovery and resolution planning framework for its banks, including cross-border banks.
- Principle 14 (Corporate governance)
  - The Corporations Act, APRA’s prudential standards and supervisory approach articulate board and management responsibilities and emphasize their roles.
  - Requirements for boards and board committees are appropriate and comprehensive.
  - Partial reliance on firms’ self-reporting of governance practices should be supplemented by greater use of in-depth supervisory assessments of key control areas.
  - PAIRS assessments of boards and management teams should explicitly incorporate effectiveness over risk management.
  - Relevant findings from ASIC and AUSTRAC reviews are often not incorporated into governance assessments.
  - The BEAR Act will provide further clarity on responsibilities and accountability for responsible parties and will require APRA engagement to ensure clear expectations under the new regime.
- Principle 15 (Risk management process)
  - APRA emphasizes board responsibility for appropriate processes; issuance of CPS 220 since the 2012 FSAP has increased banks’ focus on financial risk management and internal controls.
  - APRA conducts in-depth supervisory assessments of risk management practices periodically; more regular periodic assessments are recommended to increase confidence in firms’ reporting.
  - APRA has conducted several recovery planning exercises and thematic reviews for large ADIs; finalization of the recovery planning framework and requirements is still underway.
  - APRA requires risk-management related stress testing and regular ICAAPs; assessing inputs, controls and governance around firm-wide stress testing and ICAAP warrants more focus.
- Principle 16 (Capital adequacy)
  - APRA’s regulatory capital regime uses a conservative approach to the definition of capital and includes a conservative floor to the calculation of RWA for residential mortgages.
  - Reported regulatory capital ratios relative to other countries may be conservative as a result.
  - The imposition of the ‘unquestionably strong capital’ benchmark adds a further buffer and will hold Australian banks to a high capital standard relative to Basel requirements.
  - APRA’s process for determining the prudential capital ratio (PCR) allows it to increase required regulatory capital at individual firms based on a variety of analyses.
  - Currently, the PCR and related practices are less of a focus than requiring firms to meet the ‘unquestionably strong threshold’; as a result, APRA’s focus on firms’ use of stress testing and ICAAP to determine capital needs has not been an area of emphasis of late.
- Principle 17 (Credit risk)
  - APRA’s prudential framework and guidelines provide thorough requirements and expectations on credit risk management in ADIs.
  - Supervisors have focused thematically on underwriting standards and serviceability assessments in residential loans and commercial real estate lending for the four major banks.
  - APRA supervisors should keep close watch to ensure banks fix identified gaps and ensure proper board oversight of credit risk profiles.
- Principle 18 (Problem assets, provisions, and reserves)
  - APRA’s prudential standard is still largely based on incurred loss rules and includes concepts that do not fully align with sound practices and Basel Guidelines on prudential treatment of problem assets.
  - Australian banks mainly apply accounting requirements, including IFRS 9, for loan impairments.
  - APRA supervisors perform general reviews of loan impairment adequacy; APRA risk teams perform some analysis on problem asset trends but these are at a very general level and can be enhanced.
  - Banks’ reporting to APRA on impaired loans can incorporate additional useful information such as asset impairments in specific categories and areas.
- Principle 19 (Concentration risk and large exposure limits)
  - Revised APS 221 on large exposures adopts the new Basel Framework with one carveout related to retail exposures for economically interdependent counterparties.
  - Current and revised standards include thorough requirements on concentration risk; supervisors review specific concentration issues, particularly in real estate lending.
- Principle 20 (Transactions with related parties)
  - APS 222 sets requirements on associations with related entities and includes a definition of related parties that does not include all parties identified in this principle, including individual parties and their direct and indirect interests.
  - The standard requires specific rules related to conflict of interest in related party transactions and exposures; APRA supervisors monitor banks’ reporting and compliance.
  - Aggregate limits applied to related parties seem higher than those stipulated in the principle and there is no requirement for board approval for related party transactions and write-off of related party exposures.
  - APRA released on July 2, 2018, for consultation, revisions to its related party prudential and reporting standards that address many of the above-mentioned gaps.

*International Monetary Fund — Appendix Table 1 findings as presented in the provided content.*

### Appendix Table 1. Summary Compliance with the BCPs (continued)

### Appendix Table 1. Summary Compliance with the BCPs (continued) and Appendix Table 2. Recommendations to Improve Compliance with the BCPs

### Findings: Principles 21–29 (summary of supervisory practices and gaps)
- Principle 21. Country and transfer risks
  - APRA does not have an explicit prudential standard with respect to country and transfer risks.
  - CPS 220 and standards for credit risk management and large exposures are considered sufficient for assessing firms’ practices around these risks.
  - The updated credit risk management standard (APS 221) includes enhancements related to transfer risk explicitly.
- Principle 22. Market risk
  - APRA has a solid set of processes for risk management of market and trading related risks.
  - APRA supervisors have a strong understanding of the key issues regarding measuring and managing exposures related to trading activities.
- Principle 23. Interest rate risk in the banking book
  - APRA has solid practices and detailed guidance on interest rate risk management.
  - Banks are expected to capture interest rate risk in their ICAAP.
  - IRRBB is captured in capital as a Pillar 1 element for banks using advanced approaches.
  - Supervisory activities include monitoring and analysis and in-depth reviews; extensive prudential reporting supports ongoing monitoring.
- Principle 24. Liquidity risk
  - Since the last FSAP, APRA has strengthened capacity, tools, and prudential framework for liquidity oversight.
  - APRA has established a team of risk specialists dedicated to liquidity risk.
  - LCR and NSFR requirements have been implemented and applied for large more complex ADIs.
  - The October 2017 RCAP confirmed that Australia’s Basel III LCR is overall compliant with Basel requirements.
  - Prudential framework provides thorough requirements and guidance; frontline supervisors and liquidity risk specialists review and actively monitor banks’ liquidity risk management and conditions.
- Principle 25. Operational risk
  - CPS 220 and other prudential standards provide a good overall regulatory framework on operational risk management requirements.
  - APRA IT and operational risk specialists assist frontline supervisors in reviews covering a range of operational and IT risk issues.
  - Recent work has been performed on cyber security and systemic operational risks as ADIs deepen use of digital technology.
- Principle 26. Internal control and audit
  - Prudential standards place requirements on boards and management to have appropriate internal controls given firm size, complexity and risk profile.
  - Internal and external audit are expected to assess controls and report to the board and, in the case of external audit, to APRA.
  - There is no prudential standard that comprehensively outlines internal control and internal audit requirements for ADIs.
  - Explicit in-depth supervisory reviews of internal audit effectiveness and the role of the board in ensuring internal audit stature, resources and access have not been a consistent area of focus for APRA supervisors.
- Principle 27. Financial reporting and external audit
  - Under the Corporations Act, ASIC is the regulator responsible for external audits.
  - All Australian incorporated banks must issue audited financial reports annually and reviewed or audited half-year reports.
  - ASIC reviews external audits (including asset valuations) and carries out ongoing surveillance of financial reporting.
  - ASIC and APRA have regular interaction; ASIC is expected to inform APRA of concerns arising from its reviews.
  - Prudential standards and financial reporting laws require external auditors to report to APRA where they believe a firm is not complying with prudential requirements.
- Principle 28. Disclosure and transparency
  - APRA prudential standards (APS 330) and the Corporations Act require significant disclosures by banks to allow the public to understand banks’ condition and risks.
  - Banking statistics are made available to the public on a monthly and quarterly basis.
- Principle 29. Abuse of financial services (AML/CTF)
  - AUSTRAC has the authorities, laws, rules, and supporting processes to effectively oversee AML/CTF requirements.
  - AUSTRAC faces balancing issues: deployment of scarce human resources; working as financial intelligence agency while overseeing banks; reducing financial crimes while ensuring compliance.
  - Banks must comply with laws, rules and standards and report to AUSTRAC that they have effective practices; requirements are extensive and comprehensive.
  - AUSTRAC’s supervisory activities are risk-focused and driven largely by intelligence gathering and analysis of firm-reported data.
  - Recent events show supervisory challenges associated with partial reliance on self-reporting by firms; some firms’ compliance processes were not working as reported, leading to significant non-compliance with AML/CTF laws.

### Recommended Actions: Selected principles and specific recommendations
- Principle 1. Responsibilities, objectives and powers
  - APRA should be given clear powers in relation to prudential standard setting by removing the legal provision that subjects APRA prudential standards to being disallowed by the parliament.
  - As the banking sector opens to more competition, APRA should continue to be mindful of its overarching financial stability mandate and provide further clarifications in the APRA Act and other documents about the primary nature of that mandate.
- Principle 2. Independence, accountability, resourcing, and legal protection for supervisors
  - Clarify that the Statement of Expectations issued periodically to APRA is advisory and non-binding.
  - Remove the direction powers that the Minister can issue to APRA about policies it should pursue.
  - Laws should stipulate that the reasons for the removal of an APRA member be publicly disclosed.
  - Provide APRA with higher autonomy and flexibility in determining its budget for improved medium-term resource planning.
  - Remove constraints imposed by the efficiency dividends on APRA’s budget.
  - Remove requirement to subject APRA’s staff employment and remuneration to the APS Workplace Bargaining Policy and periodically reassess recruitment and remuneration to remain competitive.
- Principle 3. Cooperation and collaboration
  - APRA should deepen regular collaboration with ASIC and explore joint activities where feasible.
  - APRA and AUSTRAC should significantly step up cooperation by creating operational level working groups that meet frequently to discuss AML/CTF issues in specific entities and better integrate ML/TF risks into APRA’s bank risk assessments.
- Principle 5. Licensing criteria
  - APRA is encouraged to undertake a prudent and gradual approach to licensing of restricted ADIs to assess experience and avoid market disruptions.
  - APRA should enhance supervisory resources and capacity, particularly IT skills, to oversee new business models and risks of restricted ADIs during and after phased licensing.
- Principle 6. Transfer of significant ownership
  - Introduce legal changes to give APRA the power to approve changes in significant ownership of banks, including at the level of ultimate beneficiary owners, and outline clear criteria for decisions.
  - Laws or regulations should provide at least a broad definition of “national interest” considerations and could call on APRA to consult with the Treasurer where ownership changes might be contrary to national interest.
  - APRA should proceed with issuing the revised reporting standard (issued for consultation in July 2018) requiring ADIs and NOHCs to periodically report significant shareholders and ensure inclusion of all types of ultimate beneficiary owners.
  - APRA should require ADIs to notify it as soon as they become aware of material information that may negatively impact the suitability of a significant shareholder.
- Principle 7. Major acquisitions
  - APRA should outline to banks the internal criteria it uses to assess major acquisitions, as included in revisions to the prudential standard on related parties.
- Principle 8. Supervisory approach
  - APRA should put in place a formal program for the assessment of resolvability at the largest firms supported by prudential standards and detailed guidance.
  - APRA should carry out periodic in-depth reviews of the largest firms’ practices to assess effectiveness of governance, risk management and control functions for key risks and important bank processes (e.g., capital assessments) on a regular periodic cycle.
- Principle 9. Supervisory techniques and tools
  - APRA should review the PAIRS process to determine if it remains appropriate and well calibrated for the evolved supervision program.
  - APRA should expand thematic reviews across groups of firms to inform firm-specific assessments with cross-firm practices.
  - APRA should enhance offsite analytics functionality and ensure outputs from frontline teams, risk specialists, stress testing experts and offsite analysts feed supervisory strategy and action plans.
- Principle 10. Supervisory reporting
  - APRA should assess potential data needs over the next five years and revise reporting requirements to include identified data needs for firm and system-wide analyses.
  - APRA should periodically review validation tools and reliability checks (including external audit limited assurance) and consider stricter validation for banks with consistent data integrity issues (including possibly a “reasonable assurance” standard).
- Principle 11. Corrective and sanctioning powers of supervisors
  - APRA should be more proactive in escalating corrective actions quickly if a bank is not effectively cooperating, including escalation from ‘recommendation’ to ‘requirement’ and using formal corrective actions such as directions more actively.
- Principle 12. Consolidated supervision
  - APRA should enhance assessment of how non-banking activities in the wider group impact the bank/group risk profile and take proactive prudential measures.
- Principle 13. Home-host relationships
  - APRA should consider organizing regular supervisory colleges for large banks with material cross-border exposures.
  - APRA should develop and test a recovery and resolution planning framework for banking groups and group-level resolution plans for large cross-border groups.
- Principle 14. Corporate governance
  - APRA should more directly connect weaknesses in firms’ risk management practices to specific PAIRS assessments of the board and management and consider revisiting the PAIRS rating framework.
  - Through better coordination and information sharing with AUSTRAC and ASIC, APRA should ensure weaknesses identified by those agencies inform APRA’s assessments of board and senior management and integration of compliance risk management.
- Principle 15. Risk management process
  - APRA should increase focus on key inputs and controls around ICAAPs and stress testing to enhance supervisory assessment of capital adequacy.
  - APRA should continue implementation of recovery planning and create a formal fully documented program and expectations for banks.
- Principle 16. Capital adequacy
  - APRA should increase use of stress-testing analysis and assess firms’ use of stress testing for internal capital assessments.
  - APRA should increase focus on underlying risk identification, measurement, management and controls in firms’ internal capital assessments.
  - APRA is encouraged to consider reducing the reference significance weight for access to new capital in PAIRS and give more consideration to the ability to have enough capital in a variety of circumstances, including under stress.
- Principle 17. Credit risk
  - APRA supervisors should continue scrutinizing banks’ underwriting practices, particularly in retail loans (including residential mortgages) and commercial real estate lending.
  - APRA supervisors should consider periodic deep dives into banks’ credit risk management frameworks depending on ADI risks and controls.
  - In revising APS 220, APRA should consider including guidelines and main takeaways related to residential mortgage and commercial real estate lending.
- Principle 18. Problem assets, provisions, and reserves
  - APRA should revise its standard on credit quality APS 220 to incorporate expected loss rules and Basel guidelines on prudential treatment of problem assets.
  - APRA reporting on impaired assets should be enhanced to provide more granular data showing past due loans (by days past due) and distribution of loans by specific categories.
  - APRA risk teams should deepen sectoral analysis of problem assets by loan categories and collateral types to identify systemic risk issues.
- Principle 19. Concentration risk and large exposure limits
  - APRA teams should continue enhancing analysis of concentration risk, including real estate lending and real estate collateral, and take actions to address systemic trends or bank-specific risks.
- Principle 20. Transactions with related parties
  - APRA should proceed with revisions initiated in July 2018 to prudential and reporting standards on related party transactions and exposures and ensure the revised standard addresses identified gaps.
- Principle 25. Operational risk (recommendations)
  - As technology-based entities enter the market, APRA should continue enhancing capacity and skills in IT risk, particularly cyber risk and fintech-related risks.
  - APRA should continue developing analytical capabilities and work on systemic operational risk issues.
  - APRA should proceed with plans to develop a prudential standard focused on operational risk management.
- Principle 26. Internal control and audit (recommendations)
  - APRA should include a regular periodic in-depth assessment of internal audit in the supervision cycle and focus on internal audit stature, independence, sufficiency of resources (quantity and expertise) and board effectiveness in ensuring these.
  - APRA should clarify internal control and internal audit requirements more comprehensively in prudential standards.
- Principle 29. Abuse of financial services (recommendations for AUSTRAC)
  - AUSTRAC should increase use of rapid, formal legal requirements for corrective actions when firms’ compliance processes are not working as reported.
  - AUSTRAC should perform more in-depth periodic assessments of banks’ internal review processes to increase comfort about AML/CTF control practices and enable timely corrective actions.

*Appendix Table 1. Summary Compliance with the BCPs (continued) and Appendix Table 2. Recommendations to Improve Compliance with the BCPs.*

### 49.      The Australian authorities thank the IMF and its assessment team for their assessment.

### 1ausea2019007 - 49.      The Australian authorities thank the IMF and its assessment.

### Acknowledgement and commitment
- "The Australian authorities thank the IMF and its assessment team for their assessment."
- "Australia is strongly committed to the FSAP process and the insights that the FSAP provides into a country’s financial system."
- "Australia acknowledges that it is important to continually review and seek to improve the regulatory framework and supervision practices."

### Context and ongoing reform agenda
- "The Australian 2018 FSAP has taken place in the midst of a significant reform agenda for the financial sector and against the backdrop of a Royal Commission into Misconduct into Banking, Superannuation and Financial Services Industry."
- "In 2014, the Australian Government commissioned a comprehensive review of Australia’s financial system, the Financial System Inquiry."
- The Financial System Inquiry "was aimed at providing a ‘blueprint’ for future reform of the financial system and made a number of recommendations focusing on resilience, consumer outcomes, innovation and the regulatory framework."
- Australian implementation actions noted:
  - "ensuring that banks have ‘unquestionably strong’ capital ratios"
  - "improving the crisis management framework"
  - "moving to industry funding for the Australian Securities and Investments Commission."

### Basel Core Principles (BCP) assessment — views and disagreements
- "The Australian authorities share the view expressed in the report that Australia has a very high level of compliance against the Basel Core Principles for effective banking supervision."
- Authorities "note significant concerns with the ‘materially non-compliant’ ratings for CP2 Independence, accountability, resourcing and legal protection and CP6 Transfer of significant ownership."
- "In particular, the Australian authorities do not consider the IMF’s assessment accurately reflects the operation and risks in Australia’s system."

### APRA independence — assessment of risks and accountability features
- "Australia’s framework does not pose material risks to the Australian Prudential Regulation Authority’s (APRA’s) independence or its ability to effectively carry out its supervisory function."
- While IMF "noted that APRA currently had a reasonable degree of independence, it concluded there were constraints which could have the potential to limit APRA’s independence going forward."
- Authorities "agree with the need, and importance, of an independent supervisor. However, the Australian system provides for this and APRA maintains a high degree of independence to perform its role."
- "There is no evidence, past or present, of any Government or industry interference that compromises APRA’s operational independence."
- Successive Governments "have strongly reiterated the importance of APRA’s role as an independent regulator."
- Four specific accountability mechanisms identified by the IMF are described and contextualized:
  - The Minister may issue a direction to APRA:
    - "No direction has ever been issued to APRA."
    - "The use of this power is subject to a number of conditions to ensure full transparency, both from the Parliament and the public, of any direction."
    - "Additionally, the Minister must consult with APRA prior to issuing any direction."
  - Prudential standards issued by APRA are disallowable by the Parliament:
    - "No prudential standard has ever been disallowed by Parliament."
    - "The scope of APRA’s standards making power is extensive; APRA may establish prudential standards in respect of any prudential matter."
    - "These standards are legally binding and make for a powerful supervision and enforcement tool."
    - "A breach of a prudential standard is a breach of the law."
    - "APRA exercises powers as a delegate of the Parliament; as such, oversight from the Parliament is fundamental."
  - The Government’s Statement of Expectations (SOE):
    - "The SOE aims to provide guidance and clarity on the broader Government policy framework to support APRA in exercising its legislative functions."
    - "Each previous SOE has reiterated the Government’s commitment to APRA’s independence and statutory objectives and are developed in consultation with APRA."
    - "APRA is also provided the opportunity to respond with a Statement of Intent indicating how and the extent to which they intend to meet the SOE."
  - APRA’s budget, and staffing level, is subject to approval of Government:
    - "All non-corporate Commonwealth entities are subject to the Government’s budget process. This is an accountability mechanism to ensure appropriate use of taxpayers’ funds and, in APRA’s case, that industry is only levied for the cost of regulating it."
    - "The majority of APRA’s budget comes from a standing appropriation which is not subject to annual approval or scrutiny which provides for a degree of medium-term certainty."
    - "APRA can seek additional funding through the twice-yearly budget process and the Government will also review the level of funding from time to time."

- Conclusion on independence mechanisms:
  - "The Australian authorities do not consider these accountability mechanisms to be impeding on APRA’s independence and therefore does not see a case for change (consistent with Australia’s position in its 2012 FSAP)."
  - "Rather, these mechanisms are ‘checks and balances’ to promote confidence in the financial system."

### Transfer of significant ownership (CP6)
- "APRA’s advice on prudential issues, including unsuitable influential person(s) and undue economic power, is the most significant consideration in approving transfers of ownership."
- While "Australia’s system requires approval by the Treasurer, the majority of applications are handled by APRA (through a standing delegation) or, where handled by the Treasurer, are primarily informed by APRA’s prudential advice."
- Treasurer’s approval is required in applications raising "additional issues pertaining to the national interest test (for example, national security and competition)."
- The Australian authorities' position: "Australian authorities do not agree with the IMF’s assessment that there are material shortcomings in Australia’s compliance with CP6."

### Response to IMF recommendations and next steps
- "The Australian authorities welcome the IMF’s recommendations and serious consideration will be given to these, alongside the outcomes of a number of other domestic financial sector reviews."
- Concurrent review processes listed:
  - "the Productivity Commission’s reports into Competition in the Australian Financial System and Assessing Efficiency and Competitiveness in the Superannuation System"
  - "the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry"
- Implementation approach: "The FSAP recommendations will need to be considered as part of broader reforms to the financial system (resilience, competition, and conduct) and prioritized accordingly."

*1ausea2019007 - 49.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2019/1ausea2019007.pdf_