ANZ denies carrying out APRA “stress tests”

ANZ has denied reports that it and other Australian banks have been ordered by APRA to test how they would cope if the European meltdown spread to Australia.

An article in the Australian Financial Review said banks had been given one week to model the impact of the unemployment rate climbing to 12%, house prices crashing 30% and commercial property values falling 40%.

A spokesperson for APRA said the regulator had not been commenting on the story but referred Property Observer to a number of earlier articles it has published on the subject.

In December 2010, APRA published a paper titled “Stress-testing for authorised deposit-taking institution,” where it called stress-testing “a valuable tool that has been used by financial and non-financial institutions for many years to manage their risks”.

“APRA uses stress-testing in its own supervisory activities across all the industries it regulates. At times, APRA coordinates these stress-tests with the Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand (RBNZ),” the regulator said in the same paper.

Reports that banks are being asked to model how they would cope in such a crisis follow a speech made by deputy Reserve Bank governor Ric Battelino this week, where he warned that there were “various channels through which developments in Europe could affect Australia including financial linkages, trade linkages and confidence and wealth effects”.

It also follows a week of major bank AGMs where the subject of Europe was raised repeatedly.

At the Westpac AGM, chief executive Gail Kelly warned there was a possibility of credit rationing if conditions in Europe remained strained.

Since the start of the year, European banks have been undergoing stress tests following the formation of the European Banking Authority.

Last week, the EBA called on European regulators to require banks to “strengthen their capital positions by building up an exceptional and temporary capital buffer against sovereign debt exposures”.

The AFR quotes bank sources as saying “there is no suggestion APRA is concerned about existing credit quality and assessment.

“Rather, the authority is seeking to understand the impact of a severe external shock."