Banks to pad cushion

Billions needed but shouldn’t be a stretch

AUSTRALIA’S biggest banks will have to find billions of dollars of extra cash by 2020, but the new requirement does not look like being much of a problem for them.

The country’s prudential regulator yesterday raised the amount of top quality capital major lenders must hold to meet the “unquestionably strong” benchmark set in the 2014 financial system inquiry.

ANZ, Westpac, National Australia Bank and Common- wealth Bank all responded by declaring they were well placed to meet the Australian Prudential Regulatory Authority’s requirement they have Tier 1 capital ratios of 10.5 per cent by January 2020.

The banks said back in May they were already at between 9.6 and 10.1 per cent, which suggests there should be no repeat of the equity raisings that brought in more than $20 billion in 2015.

Investors seemed to agree with the banks’ upbeat assessment, sending shares in the big four soaring.

Treasurer Scott Morrison said the move would put Australia to the fore internationally when it came to financial stability with a minimum impact on customers.

“Today’s announcement should not significantly impact loan pricing or consumers’ ability to access finance,” Mr Morrison said. “APRA envisages that ... major banks should be able to meet the additional capital requirements from retained earnings without significantly affecting business growth plans, dividends policies or undertaking equity capital raisings.”

APRA chairman Wayne Byres said the banks, which unlike many of their international peers navigated the global financial crisis without government bailouts, should be able to handle future adversity without public sector support.

“APRA’s objective in establishing unquestionably strong capital requirements is to establish a banking system that can readily withstand periods of adversity without jeopardising its core function,” Mr Byres said.

UBS banking analyst Jon Mott said he anticipated the banks exceeding the minimum requirement with a Tier one ratio of about 10.75- 11 per cent.

“Our initial calculations suggest the sector’s capital shortfall to reach 10.75 per cent CET1 is about $7.9 billion,” Mr Mott said. He said CBA’s shortfall was the largest at an estimated $4.2 billion and ANZ’s the smallest at $490 million.

ANZ chief financial officer Michelle Jablko said her bank, whose 10.1 per cent common equity Tier 1 capital ratio in May was the equal best among the big four, was comfortable with the new requirement.