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Banking (prudential standard) determination No. 14 of 2022

Prudential Standard APS 220 Credit Risk Management

Banking Act 1959

I, Renée Roberts, a delegate of APRA:

(a)     under subsection 11AF(3) of the Banking Act 1959 (the Act), REVOKE Banking (prudential standard) determination No. 1 of 2022 including  Prudential Standard APS 220 Credit Risk Management made under that determination; and

(b)     under subsection 11AF(1) of the Act, DETERMINE Prudential Standard APS 220 Credit Risk Management in the form set out in the schedule, which applies to all ADIs and authorised NOHCs to the extent provided in paragraphs 2 to 6 of the prudential standard.

This instrument commences on 1 January 2023.

Dated: 1 December 2022

[Signed]

Renée Roberts
Executive Director
Policy and Advice Division
Interpretation

      In this instrument:

APRA means the Australian Prudential Regulation Authority.

ADI  and authorised NOHC have their respective meanings given in section 5 of the Act.

Schedule

Prudential Standard APS 220 Credit Risk Management comprises the document commencing on the following page.

Prudential Standard APS 220

Credit Risk Management
Objectives and key requirements of this Prudential Standard
This Prudential Standard requires an authorised deposit-taking institution to implement a credit risk management framework that is appropriate to its size, business mix and complexity.
The key requirements of this Prudential Standard are that an authorised deposit-taking institution must maintain:
     * an appropriate credit risk appetite statement and credit risk management strategy that reflects its credit risk appetite and credit risk profile;
     * prudent policies and processes to identify, measure, monitor, report and control or mitigate credit risk over the full credit life-cycle;
     * sound credit assessment and approval criteria, including for the comprehensive assessment of a borrower's repayment capacity;
     * an appropriate system for the ongoing administration of its credit portfolio;
     * prudent policies and processes for the early identification and management of problem exposures, including non-performing and restructured exposures and other transactions; and
     * appropriate credit risk practices, including an effective system of internal control, to consistently determine adequate provisions in accordance with the authorised deposit-taking institution's stated policies and processes and Australian Accounting Standards.

Table of Contents

Authority
Application
Scope
Interpretation
Definitions
Adjustments and exclusions
Previous exercise of discretion
Credit risk management framework
Outsourcing
Large exposures and associations with related entities
Credit risk appetite
Credit risk management strategy
The role of the Board and senior management
Credit risk policies and processes
Credit origination
Credit assessment and approval process
Credit administration, measurement and monitoring
Controls over credit risk
Classification of exposures and provisions
Non-performing exposures
Restructured exposures
Credit risk and accounting for expected credit losses
Prescribed provisioning
Supervisory limits
Adequacy of credit risk management and provisions
Special purpose engagements
Attachment A – Collateral valuation
Attachment B – Prescribed provisioning