APRA has written to all locally incorporated Authorised Deposit-taking Institutions (ADIs) (ie banks, building societies, etc) to clarify the appropriate capital treatment of ADIs’ loans to self-managed super funds (SMSFs) that are secured by residential mortgages (SMSF loans) under Prudential Standard APS 112 Capital Adequacy: Standardised Approach to Credit Risk (APS 112) and Prudential Standard APS 113 Capital Adequacy: Internal Ratings-based Approach to Credit Risk (APS 113).
APRA said it wished to clarify that, for the purposes of APS 112, SMSF loans are to be treated as “non-standard” eligible mortgages. As such, APRA considers that SMSF loans “may have a different and potentially higher loss profile in comparison to standard loans”.
[LTN 12, 18/1/13]