Liquidity crunch threatens super funds, banks and markets: APRA
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More news: APRA has confirmed that liquidity constraints within the super sector could exacerbate losses during a stress event.
While noting that the superannuation industry was able to maintain sufficient cash and liquid assets, APRA said “significant changes” had to be made to their asset portfolios with the subsequent rebalancing having a "disproportionate impact” on some members.
This included large sales of international and domestic listed assets, some listed asset sales, and some foreign exchange transactions, impacting markets, with each super fund reacting differently.
The prudential regulator described its nervousness about the fast growing size of super funds and its interconnectedness with Australian banks, detailing what it found during its stress-testing exercise.
“Banks experienced significant liquidity stress because of a large and sudden withdrawal of deposits and other forms of funding. This included withdrawals by super funds,” APRA said, noting that banks still managed to ultimately restore liquidity and meet their financial obligations.
A further operational challenge that limited their ability to trade securities hit banks harder than super funds, APRA noted, but identified some key weaknesses in the response by the super funds.
What they said: The report confirms some of the liquidity concerns that regulators have become increasingly vocal about in the last year.
“Over the past year, APRA has reinforced expectations on valuation governance, investment governance, and liquidity risk management for superannuation funds investing in unlisted assets and is consulting with life insurers on the capital treatment for unrated investments,” the APRA report said.
“APRA is continuing to direct supervisory attention to this area, assessing the risks and, as necessary, responding to them.”
APRA calls out home lending as 'key vulnerability' for Australia's financial system
The news: APRA chair John Lonsdale has warned housing is “a key vulnerability” in Australia’s financial system, as the prudential regulator releases the results of its year-long stress test with six large super funds and Australia’s big four banks.
The report, the first of its kind in Australia, said there had been a “build up” of domestic vulnerabilities, especially high household debt and an increase in high risk lending, in particular high debt-to-income borrowing by investors.
Those risks could be exacerbated by the federal government’s 5% deposit scheme, the regulator noted, amid heightened competition amongst banks and home lenders for market share. The report said this “could lead to pressure to ease underwriting standards and increase risk appetite”.
“APRA has observed that some banks have increased appetite to make lending decisions for certain customer cohorts that are exceptions to their internal lending policies.”
While it found Australian institutions were well-placed to deal with stresses, it warned that heightened overseas risks and a volatile geopolitical environment could erode Australian financial resilience if not properly managed.
The context: The report marks the first of what will be twice-annual reports as part of ongoing stress testing by APRA. The next report is due out in the middle of 2026.
What they said: “Domestically, housing remains a key vulnerability, given high household debt and prices continuing to rise. We are carefully monitoring these risks and ensuring banks are prepared to implement additional macroprudential tools where required to reinforce lending standards,” Lonsdale said.
The source: APRA
