APRA’s Quarterly Report: ADIs Well-Capitalized Amidst Economic Challenges

Finance

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In its latest quarterly report, the Australian Prudential Regulation Authority (APRA) found that Authorised Deposit-taking Institutions (ADIs) are well-capitalised and well-positioned to face potential economic challenges. Despite narrowing margins and slowing profit growth, capital ratios for ADIs reached a new high in the first quarter of 2024, ending on March 31.

While net profits after tax dropped by 4.3% year-on-year to $39.4 billion, total assets grew by 1.9%, reaching $6,205.3 billion. The total capital base also increased by 4.8% to $449.0 billion, with the total capital ratio rising to 20.5%. Liquidity and funding levels remained well above minimum requirements, though the liquidity coverage ratio dropped slightly by 1.2 percentage points to 136.5%.

Despite higher interest rates and pressure on lending margins, residential mortgage credit growth moderated but remained above pre-pandemic levels. Strong demand in the industrial sector bolstered growth in commercial real estate lending, although the overall rate of growth continued to slow.

Non-performing loans increased, but potential credit losses were mitigated by high levels of well-secured loans. Non-performing commercial real estate exposures also increased but remained at low levels.

The report also highlighted key statistics for ADIs conducting residential mortgage lending, with residential mortgages outstanding increasing by 4.1% year-on-year to $2,230.0 billion. Of this, owner-occupied mortgages made up 67.8% of the total, while investment mortgages accounted for 30.3%.

ADIs’ strong capital positions and liquidity, along with low levels of non-performing loans, indicate that they are well-positioned to withstand potential economic challenges. However, the pressure on lending margins and the slowing profit growth suggest that ADIs may face ongoing headwinds in the coming quarters.

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