Media Release – Published 7 April 2020 (https://www.apra.gov.au/capital-management)
AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY
1 Martin Place (Level 12), Sydney, NSW 2000
GPO Box 9836, Sydney, NSW 2001
T 02 9210 3000 | W www.apra.gov.au
WAYNE BYRES
APRA Chairman
7 April 2020
TO: ALL AUTHORISED DEPOSIT-TAKING INSTITUTIONS AND INSURERS
CAPITAL MANAGEMENT
Banks and insurers have a critical role to play in supporting Australian households, businesses
and the broader economy, during this period of significant disruption caused by COVID-19.
APRA has made recent adjustments to regulatory requirements and timetables, including the
ability for entities to use capital buffers if needed, with this support very much in mind.1
In this context, APRA expects ADIs and insurers to limit discretionary capital distributions in
the months ahead, to ensure that they instead use buffers and maintain capacity to continue
to lend and underwrite insurance. This includes prudent reductions in dividends, taking into
account the uncertain outlook for the operating environment and the need to preserve capacity
to prioritise these critical activities.
Decisions on capital management need to be forward-looking, and in the current environment
of significant uncertainty in the outlook, this can be very challenging. APRA is therefore
providing Boards with the following additional guidance.
During at least the next couple of months, APRA expects that all ADIs and insurers will:
take a forward-looking view on the need to conserve capital and use capacity to support
the economy;
use stress testing to inform these views, and give due consideration to plausible downside
scenarios (periodically refreshed and updated as conditions evolve); and
initiate prudent capital management actions in response, on a pre-emptive basis, to ensure
they maintain the confidence and capacity to continue to lend and support their customers.
During this period, APRA expects that ADIs and insurers will seriously consider deferring
decisions on the appropriate level of dividends until the outlook is clearer. However, where a
Board is confident that they are able to approve a dividend before this, on the basis of robust
stress testing results that have been discussed with APRA, this should nevertheless be at a
materially reduced level. Dividend payments should be offset to the extent possible through
the use of dividend reinvestment plans and other capital management initiatives. APRA also
1 On 19 March 2020, APRA announced temporary changes to expectations on bank capital. The aim
of this flexibility was to allow banks to use capital buffers, if needed, to support the ongoing supply of
credit to the Australian economy.
2 This applies to all ADIs, Life, General and Private Health insurers, including foreign subsidiaries.
Australian Prudential Regulation Authority
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expects that Boards will appropriately limit executive cash bonuses, mindful of the current
challenging environment.
If you have any questions on APRA’s guidance on capital management, please contact John
Lonsdale (ADIs), Geoff Summerhayes (Insurance) or your responsible supervisor.
Yours sincerely,
Wayne Byres
Chair
