IMF says Australia must do more to prepare for next crisis

The IMF has warned Australia it needs to sock away $20 billion to prepare for any new banking crisis.

The IMF says Australian banks are profitable and sound, but could do more to prepare for a crisis Picture AFP

The International Monetary Fund has called on Australia to better prepare for the risk of a banking crisis, including putting aside $20 billion to draw on in the event of a bank collapse or wider threat.

The IMF praised Australia’s financial stability and policy in its 2018 Financial Sector Assessment Program report released yesterday. But it said “more needs to be done” to ensure authorities were prepared for a major bank collapse or crisis in the finance sector.

“The $20bn standing budgetary appropriation for financial crisis management processes should be discussed by the CFR (Council of Financial Regulators) and be specified in the legal framework as soon as feasible,” the IMF said.

The report also suggested the bank levy announced by the Federal government in the 2017-18 budget could be accrued to create a bank resolution fund.

“While similar levies, paid directly into the government general revenue, have been introduced in a number of advanced jurisdictions, it is advisable over a longer term to use the bank levy to build up a dedicated resolution fund,” the IMF said.

The levy applies to the big four banks and Macquarie Group. HBOS-owned Bankwest almost collapsed during the global ­financial crisis before being subsumed by Commonwealth Bank, while St George was acquired by Westpac.

The IMF assessment was conducted in 2018, six years after an earlier report.

It also urged the Australian Prudential Regulation Authority to develop a “detailed set of current data” for banks’ assets to allow regulators to undertake asset valuations at short notice and assess solvency and viability.

“The banks should be required to populate this data on short notice and this would be subject to regular testing by APRA, with occasional external audit. APRA should also be internally ready to undertake a viability assessment under acute time pressure, with pre-approved methodology and resources,” the report said.

APRA chairman Wayne Byres acknowledged the IMF’s call for improvements in areas including data collection.

“The report notes the need for additional investment in data and analytical tools to strengthen prudential supervision and systemic risk oversight. APRA has recognised this as part of its 2018-2022 Corporate Plan, which includes a major data transformation program to ensure APRA keeps pace with advancements,” he said.

“This program will be the foundation through which we improve our supervisory effectiveness and also provide more information and transparency.”

This year, APRA in particular raised the ire of the Hayne royal commission for not taking a proactive enough approach to enforcement and taking banks to task on non-financial risks.

The IMF report did, however, label Australia’s banks well capitalised, liquid and said they have a “long history of delivering high profits”.

“Asset quality remains relatively high, with average nonperforming loans of only 1 per cent,” the report said. “Banks carry high exposure to residential and commercial real estate.”

Mr Byres said the IMF assessment made “positive findings” on financial stability and resilience in Australia.

“Australia’s financial system remains fundamentally sound due to a long program of work to lift capital ratios, establish a more stable funding profile, and increase holdings of liquid assets,” he said.