APRA tells banks to prepare for financial storm clouds

The chairman of Australia's prudential regulator wants banks to take advantage of a relatively good climate and build financial resilience before storm clouds form.

Speaking at an Australian Business Economists lunch yesterday, APRA chairman Wayne Byres foreshadowed strong winds in finance, warning Australian institutions not to fail to prepare for a crisis.

Noting the current strength of Australia's banks, Byres was adamant the time for action was before another financial crisis enveloped the banking system.

"The banking system's funding profile has improved considerably since the global financial crisis, and asset quality remains solid. All in all, it's a pretty positive financial story. But so it should be: after 26 years (and counting) of almost continuous economic expansion, the banking system should be nothing if not financially sound," Byres said.

"History tells us, however, it's not wise to assume good times will last forever. It might be sunny today, but financial storm clouds and strong winds will arrive at some point."

Byres outlined a three-pronged strategy which he said was both prudent, simple and would ensure Australia's banks were prepared for the worst, should it eventuate.

"Maintaining sound lending standards when the sun is shining and winds are calm; building and maintaining financial resilience today to protect against stormy weather in the future; and preparing contingency plans to ride out a severe storm, if one does hit," he said.

Byres' focus on contingency planning comes after major accounting firm Deloitte released survey data which shows 90% of crisis management leaders are confident of their capability to respond to crises, yet only 17% have actually tested their preparedness.

The firm said 60% of crisis management leaders believe they face more crises than 10 years ago, with almost all leaders surveyed overestimating their capability to respond to a crisis.

Deloitte Australia crisis management leader Tony Morris said despite knowing preparation was key, many organisations fail to test their preparedness through crisis simulations.

"Organisations are keenly aware of the increasing threat of crises according to nearly 60% of respondents to a Deloitte global survey. Some 80% of organisations worldwide have had to mobilise their crisis management teams at least once in the past two years. Yet only 17% of the 500 senior crisis and risk executives we surveyed actually test their capability," Morris said.

"From experience we know that it's the ability to test, rehearse and simulate crises that ensure organisations are ready to respond with skilled leadership and plans that work.

"Being prepared, knowing how best to deal with incidents or issues led crises, and how to respond to them swiftly and appropriately, are all critical skills to successfully protect your customers and people, your operations, and of course, your reputation and brand."

Read more: APRADeloitte AustraliaTony MorrisWayne ByresAustralian Business Economists
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