Australia’s biggest banks would have to hold more capital under fresh guidelines from the Australian prudential regulator aimed at ensuring the institutions are “unquestionably strong.”
The four major banks — Australia & New Zealand Banking Group Ltd (ANZ), Commonwealth Bank of Australia, Westpac Banking Corp and National Australia Bank Ltd — would need to have tier-1 capital ratios of at least 10.5 percent by Jan. 1, 2020, the Australian Prudential Regulatory Authority (APRA) said in a statement yesterday.
The average across the banks last year was 9.85 percent, Morgan Stanley & Co data showed.
The agency expects the four major banks will have to increase capital ratios by about 100 basis points above their levels in December last year, while other banks using standardized models to assess risk would see minimum requirements increase by about 50 basis points.
“The new requirements look relatively benign,” Citigroup Inc credit analyst Anthony Ip said. “The majors may well be able to meet the new requirements organically without equity raisings, assets sales or changes to dividends.”
Commonwealth Bank faces a capital shortfall of A$2.6 billion (US$2.06 billion) under the new guidelines, while National Australia Bank is A$1.9 billion short, according to a Morgan Stanley analysis released before the announcement.
Westpac needs A$700 million of fresh capital, while ANZ has a A$1.4 billion surplus, Morgan Stanley said.
The decision marks a further ratcheting up of regulatory efforts to ensure the country’s large lenders can weather any downturn, particularly in the property market.
In 2015, the big banks collectively raised A$20 billion in new capital after the regulator increased the amount banks had to hold against potential home-loan losses.
“APRA’s objective in establishing unquestionably strong capital requirements is to establish a banking system that can readily withstand periods of adversity without jeopardizing its core function of financial intermediation for the Australian community,” APRA Chairman Wayne Byres said in a statement.
The agency said it “encourages” the banks to consider raising their capital benchmarks more quickly than the formal deadline.
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