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APRA ditches property revaluation requirement

The prudential regulator has updated Authorised Deposit-taking Institutions (ADIs) on their requirements to revalue property in the wake of the COVID-19 downturn.

APRA said ADIs are currently required to revalue property used as security for residential mortgage exposures for the purposes of measuring regulatory capital, when they become aware of a material change in the value of property in an area or region.

The regulator had previously proposed to remove the requirement as part of broader revisions to the prudential standards on regulatory capital.

"This was foreshadowed in APRA's consultation on revisions to the ADI capital framework in June 2019," it said.

"The rationale for this change in part recognised that the calibration of the residential mortgage risk weights in APS 112 already includes an allowance for increases in the risk of residential mortgage exposures, including from house price movements."

APRA said additional movements in risk weights from the revaluation of residential mortgage properties has the potential to be "excessively pro-cyclical" in amplifying ADI capital requirements.

"Given these considerations and the intention to remove the revaluation requirement, APRA is clarifying that ADIs will not be expected to revalue residential mortgage properties for the purpose of meeting APS 112 Attachment C paragraph 6," APRA said.

"This applies with immediate effect. ADIs may, however, consider it appropriate to continue to conduct revaluations for broader risk management and other purposes."

APRA confirmed that, consistent with its future intention of removing the APS112 requirement from the ADI capital framework, ADIs utilising the standardised approach to credit risk will not be expected to revalue residential mortgage property for the purpose of meeting the requirements.

Read more: ADIAPRA
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