Loan rate hike mooted

The Gold Coast Bulletin - - BUSINESS - JEFF WHALLEY

AUS­TRALIA’S big banks could again come un­der pres­sure to hike home loan rates after they were told to put away more cash to for­tify the fi­nan­cial sys­tem.

The banks are now ex­pected to set aside up to $83 bil­lion more in emer­gency re­serves – ef­fec­tively funds they could draw on to un­wind op­er­a­tions in case of a col­lapse.

Un­der a pro­posal tabled by the bank­ing reg­u­la­tor yes­ter­day – and broadly re­ceived in the in­dus­try as a di­rec­tion – the banks will have to put away the cash to boost their “loss ab­sorb­ing and re­cap­i­tal­i­sa­tion ca­pac­ity”.

The Aus­tralian Pru­den­tial Reg­u­la­tion Author­ity said it would “sup­port or­derly res­o­lu­tion in the un­likely event of fail­ure”, min­imis­ing the need for tax­payer sup­port.

“This will be achieved by ad­just­ing, where ap­pro­pri­ate, (a lender’s) to­tal cap­i­tal re­quire­ment,” the reg­u­la­tor said.

The watch­dog said the changes would take ef­fect over five years, so they were “not ex­pected to have an im­me­di­ate or ma­te­rial ef­fect on lend­ing rates”. But it ac­knowl­edged the move was likely to “marginally in­crease each ma­jor bank’s cost of fund­ing”.

It comes after all of the big lenders other than Na­tional Aus­tralia Bank hiked their vari­able mort­gage rates, cit­ing ris­ing fund­ing costs.

Assess­ing APRA’s an­nounce­ment, ANZ said it would likely have to in­crease its cap­i­tal re­serves by $16 bil­lion to $20 bil­lion. West­pac said it ex­pected to set aside $17 bil­lion to $21 bil­lion.

The Com­mon­wealth Bank put its range at $18 bil­lion to $23 bil­lion and Na­tional Aus­tralia Bank said it equated to an in­crease in cap­i­tal of $16 bil­lion to $19 bil­lion.

West­pac added it was “not pos­si­ble at this point to de­ter­mine the ac­tual to­tal cost …

given the fi­nal de­tails of the rules are yet to be de­ter­mined”.

The reg­u­la­tor ex­pects banks to use what is known as tier-two cap­i­tal to cover the new re­quire­ment.

“The pro­posed changes are ex­pected to marginally in­crease each ma­jor bank’s cost of fund­ing – in­cre­men­tally over four years – by up to five ba­sis points (0.05 per­cent­age points) based on cur­rent pric­ing,” the watch­dog said.

APRA chair Wayne Byres said the reg­u­la­tor had to de­ter­mine the best way to pre­pare for a well-or­dered wind­ing down of a lender if nec­es­sary.

“The re­silience of the Aus­tralian bank­ing sys­tem con­tin­ues to im­prove, un­der­pinned by the build-up of cap­i­tal over the last decade,” Mr Byres said.

“How­ever, no mat­ter how re­silient fi­nan­cial in­sti­tu­tions are, the pos­si­bil­ity of fail­ure can­not be en­tirely re­moved.

“There­fore, in ad­di­tion to strength­en­ing the re­silience of the fi­nan­cial sys­tem, it is pru­dent to plan for the un­likely event of fail­ure.”

Mr Byres said the events of the global fi­nan­cial cri­sis had shown “the im­pact that fail­ures can have ... and the sub­se­quent so­cial and eco­nomic con­se­quences”.

The plan is not linked to a sep­a­rate push by APRA for banks to have “un­ques­tion­ably strong” cap­i­tal lev­els, the reg­u­la­tor saiD.

Newspapers in English

Newspapers from Australia

© PressReader. All rights reserved.