weights will apply to certain Australian mortgages from
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