Watchdog is consulting on targeted cuts to bank risk weights for infrastructure, corporate and residential development lending
Australia's biggest lenders could soon have more room to lend, thanks to a consultation into banks’ risk settings.
The Australian Prudential Regulation Authority (APRA) has opened a formal consultation on easing so-called risk weights for three categories of lending: major infrastructure projects, business loans, and residential property development.
If implemented, the changes would take effect from 1 April 2027.
The move matters because risk weights sit at the heart of how much a bank can lend. Put simply, the higher the risk weight assigned to a loan, the more capital a bank must set aside as a buffer – capital that cannot be used to write new loans.
By reducing those weights in targeted areas, APRA is signalling it believes Australian banks can afford to do more lending in these sectors without putting the broader financial system at risk.
It comes amid plummeting confidence in the country’s property and construction industries and pressure on the government to reduce red tape in order to boost flagging productivity.
At a Senate Select Committee on Productivity hearing earlier this year, Master Builders Australia told senators that construction productivity has fallen for seven consecutive years and is now materially below earlier levels.
APRA Chair John Lonsdale framed the review as a matter of finding the right balance. "We also recognise the importance of periodically reviewing our settings to ensure that the framework is calibrated to the underlying risks and that we're achieving the right balance between safety and stability, as well as efficiency and competition," he said.
What could change
The consultation proposes three specific adjustments.
The first affects loans to large infrastructure operators of toll roads, utilities and other essential public assets. Under the current rules, these borrowers are treated similarly to ordinary corporate clients for capital purposes.
APRA is proposing to apply the lower risk weights used for public sector entities, which would cut the applicable weighting on unrated infrastructure borrowers from as high as 110% down to 50%, effectively halving the capital a bank must hold against those loans.
The second change relates to business lending where the borrower has no official credit rating – a common situation for mid-market companies.
APRA is proposing to introduce a new lower risk weight of 65% for high-quality unrated borrowers assessed as equivalent to an A- credit rating or better. Currently, the best available weighting for this group is 85%. The change is designed to reduce the cost of loans for strong, established businesses that simply have not paid for an external credit rating.
The third proposal is the most directly relevant to housing supply. At present, banks can apply a lower risk weight to residential construction loans if pre-sales cover 100% of the total project debt.
APRA is proposing to cut that threshold to 50%, and to create an equivalent pathway for build-to-rent developments using pre-lease contracts rather than pre-sales. The upshot is that more construction projects could qualify for lower-cost bank financing, potentially supporting a greater volume of new homes being built.
Keeping the guardrails in place
“At a time of global economic and geopolitical uncertainty, we believe that Australia’s ‘unquestionably strong’ bank capital framework remains appropriate to safeguard financial stability in a high-risk environment,” said Lonsdale.
But he conceded that changes could be made to “improve the efficiency of the capital framework without compromising core prudential objectives”.
By reducing the amount of capital banks need to hold against these categories of loans, “it should give banks greater capacity to deploy released capital in a manner that supports broader economic outcomes”, Lonsdale added.
For mortgage brokers and lenders active in the construction finance space, easing the pre-sales requirement removes one of the most commonly cited hurdles for residential developers seeking bank funding, particularly on build-to-rent projects where forward lease contracts are the norm.
Tight pre-sales requirements among the traditional lenders have contributed to a boom in construction and development finance among the non-bank lenders, although this often comes with a risk premium on interest repayments.
More broadly, the review reflects a deliberate shift in tone at APRA towards one that acknowledges the regulator's responsibility not just to prevent bank failures, but to ensure the capital framework does not itself become an obstacle to economic activity and housing delivery.
Submissions on the credit risk proposals close on 7 September 2026, with final standards expected in late 2026 ahead of the April 2027 implementation date.
