What Apra’s new risk weights mean for RMBS

Author: Ashley Lee | Published: 27 Jul 2015
Higher risk weights will apply to certain Australian mortgages from July 2016

The Australian Prudential Regulatory Authority (APRA) announced a 25% risk weighting for residential mortgages last week. It’s unclear what this means for the country’s residential mortgage-backed securitisation (RMBS) market.

The new risk weighting is for the five Australian banks – the big four plus Macquarie – that calculate credit exposure under an Internal Ratings-Based (IRB) approach; the rest use a standard model.

When it comes into effect on July 1 2016, Apra’s requirement will boost the average risk weight for residential mortgages at these five institutions nearly ten percentage points – from a previous average of 16%.

It’s unclear what this means for Australia’s RMBS market. At present it appears that banks would be eager to get loans off their books, but there is some regulatory uncertainty as practitioners wait for Apra’s changes to APS 120, the prudential guidelines...