Australian Prudential Regulation Authority publishes first System Risk Outlook highlighting geopolitical and housing vulnerabilities and Phase 1 system risk stress test findings

The Australian Prudential Regulation Authority has published the first edition of its new System Risk Outlook, a twice-yearly report intended to increase transparency on risks and vulnerabilities in the Australian financial system and to inform APRA’s regulatory priorities. The assessment highlights heightened overseas risks amid an expectedly volatile geopolitical environment, close monitoring of domestic housing-related vulnerabilities, and the growing potential for shocks to transmit across the system as interconnectedness increases. Overseas risks are described as elevated, with the Council of Financial Regulators strengthening resilience through a dedicated geopolitical risk work program. Domestically, APRA points to high household debt and rising prices as key housing vulnerabilities and notes early signs of a pick-up in higher-risk lending, particularly high debt-to-income borrowing by investors, while overall housing lending standards remain sound. The report also summarises Phase 1 findings from APRA’s inaugural system risk stress test conducted this year with the four major banks and six large superannuation funds, indicating that superannuation funds can act as an important stabiliser during stress but that, in some cases, their actions can amplify the negative effects of shocks on members and the broader system. Phase 2 of the system risk stress test will commence shortly to test the robustness of the Phase 1 findings and expand the analysis, with a final detailed report incorporating Phase 2 expected in mid-2026.