Authority shies away from tying lenders to overseas firms
Big banks off hook
AUSTRALIAN banks will need to raise billions of dollars in new capital in the next few years, but analysts say the big four lenders have scored a win with the banking regulator.
The Australian Prudential Regulatory Authority says the major banks are well capitalised and has stepped away from a recommendation from the Financial System Inquiry to tie capital reserve levels to their global peers.
The inquiry, led by former Commonwealth Bank boss David Murray, in December recommended banks’ capital levels be lifted to a level that would place them in the top 25 per cent of global peers, to ensure the lenders were “unquestionably strong”.
But APRA says while the global comparison is useful, it won’t strictly tie Australian banks to international peers.
“APRA regards the top quartile positioning as a useful ‘ sense check’ of the strength of the Australian framework, but does not intend to tightly tie Australian requirements to a benchmark based on the capital adequacy ratios of international banks,” APRA said.
Morningstar senior analyst David Ellis says that’s good news for the big four – the Commonwealth, National Australia Bank, ANZ and Westpac.
APRA is still expected to lift capital requirements, but their latest statement indicates the measures it implements won’t be as onerous as some had ex- pected and the banks will have several years to get their house in order, he said. “It’s a big win for the major banks,” he said.
APRA said the major banks would need to lift their capital reserves by around two percentage points compared to their June 2014 levels in order to be placed in the top quartile globally, a move Mr Ellis says would require the banks to raise between $ 15- 20 billion.
But NAB and Westpac have already announced big capital raisings – worth $ 5.5 billion and $ 2 billion respectively and Mr Ellis said the banks could easily raise funds by issuing new shares or selling assets.
“The banks will be able to comfortably achieve that over a number of years,” he said.
NAB said it was well placed to respond to changes to reserve ratios, while Westpac said it was pleased APRA wouldn’t require banks to benchmark their reserves against international peers.
ANZ said it had been planning for higher capital requirements for some time. “We have a number of options for managing our capital including organic capital generation, balance sheet management and the disposal of non- core assets,” chief financial officer Shayne Elliott said.
It’s a big win for the major banks MORNINGSTAR SENIOR ECONOMIST DAVID ELLIS