pc
nid 92987
Jun 05, 2026
kgurnani@vixio.com
Australia
Australian Prudential Regulatory Authority
financial services
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1830 charsAustralian Prudential Regulatory Authority Finalises New Internal Ratings-Based Accreditation Pathway for Banks
On June 4, 2026, the Australian Prudential Regulatory Authority (APRA) finalised a new, more accessible pathway for banks to become accredited to use the internal ratings-based (IRB) approach to calculate credit risk-weighted assets. The IRB approach allows banks to better match capital to their actual risk, potentially reducing capital requirements and enabling more competitive pricing.
Currently, the vast majority of Australian banks use the standardised approach to calculate risk-weighted assets, which determines the amount of regulatory capital they need to hold for credit risk. APRA has approved six of the largest banks—the four major banks, Macquarie Bank, and ING Bank Australia—to use the IRB approach. The new pathway aims to make IRB accreditation more attainable for medium-sized banks by making the accreditation process more flexible and transparent. APRA said the changes have the potential to boost competition while still supporting financial safety by incentivising banks to invest in advanced risk management capabilities. The revised pathway delivers on APRA's commitment to review and streamline the IRB accreditation process, responding to Action 2 of the Council of Financial Regulators' Review of Small and Medium-sized Banks.
APRA published a letter to industry confirming its intention to proceed with the new pathway, which includes APRA's response to submissions received during consultation. Medium-sized banks seeking IRB accreditation should review APRA's guidance on the new pathway. APRA supervises institutions holding $9.8 trillion in assets for Australian depositors, policyholders, and superannuation fund members across banks, mutuals, general insurance and reinsurance companies, life insurance, private health insurers, friendly societies, and most superannuation industry members.
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2140 charsAustralian Prudential Regulatory Authority Finalises New Internal Ratings-Based Accreditation Pathway for Banks
On June 4, 2026, the Australian Prudential Regulatory Authority (APRA) finalised a new, more accessible pathway for banks to become accredited to use the internal ratings-based (IRB) approach to calculate credit risk-weighted assets.
The IRB approach allows banks to better match capital to their actual risk, potentially reducing capital requirements and enabling more competitive pricing. Currently, the vast majority of Australian banks use the standardised approach to calculate risk-weighted assets, which determines the amount of regulatory capital they need to hold for credit risk. The new pathway aims to make IRB accreditation more attainable for medium-sized banks by making the accreditation process more flexible and transparent. APRA said the changes have the potential to boost competition while still supporting financial safety by incentivising banks to invest in advanced risk management capabilities. The revised pathway delivers on APRA's commitment to review and streamline the IRB accreditation process, responding to Action 2 of the Council of Financial Regulators' Review of Small and Medium-sized Banks.
Banks should note the following caveats of this new pathway:
Authorised Desposit-taking Institutions (ADIs) cannot adopt the IRB approach without approval of the APRA.
Approved IRB banks must used internally generated estimates of key credit risk parameters, which are fed into APRA-prescribed risk-weight formulas to calculate risk-weighted assets (RWAs) and capital requirements.
Boards and senior management must approve rating systems and methodologies; understand model outputs and limitations; receive regular reporting on rating migrations, default rates and model performance; and review material changes to rating systems.
Banks must maintain an independent credit risk control unit.
APRA has approved six of the largest banks—the four major banks, Macquarie Bank, and ING Bank Australia—to use the IRB approach.
APRA has also published Prudential Standard APS 113 Capital Adequacy: Internal Ratings-based Approach to Credit Risk and a Prudential Practice Guide to supplement the announcement.