(Reuters) -Commonwealth Bank of Australia on Wednesday launched an alternate assessment rate allowing select borrowers to refinance their loans if they are capable of repaying at 1% above current market rates, instead of the industry standard of 3%.

"We are introducing an alternate interest rate serviceability buffer of 1% for select customers who meet strict eligibility criteria," CBA's Michael Baumann, Executive General Manager Home Buying said.

The country's prudential regulator advises banks to extend loans to customers only if the bank believes they can repay them at three percentage points higher than current market rates.

The alternate interest rate buffer assessment rate will help customers which do not pass the standard 3% buffer requirement over a 30 year period for principal and interest loan, but who otherwise would be eligible to refinance to a CommBank home loan, Baumann said.

The alternative buffer will be provided to applicants from Friday, subject to conditions like them having no lenders mortgage insurance and no missed payments across any financial product over the last year, among several other conditions.

Westpac Banking Corp, the country's second-biggest mortgage provider, also offers modified serviceability assessment rate to customers unable to meet the industry standard.

Earlier this month, the Australian Prudential Regulation Authority (APRA) in a letter reiterated its expectations of lenders sticking to the industry standard, and said banks could face heightened supervisory attention if they made large exceptions.

The APRA did not immediately respond to a Reuters request for comment on CBA's alternate buffer move.

(Reporting by Sameer Manekar in Bengaluru; Editing by Nivedita Bhattacharjee)