Aus­tralia flags higher cap­i­tal re­quire­ments

‘Big Four’ banks say plan needs up to A$83bil ex­tra cap­i­tal

The Star Malaysia - StarBiz - - Foreign News -

SYD­NEY: Aus­tralia’s bank reg­u­la­tor said it wants to raise the amount of spare cap­i­tal banks must carry, its third such re­quest in three years, heap­ing pres­sure on com­pa­nies al­ready brac­ing for tight­ened reg­u­la­tion.

The Aus­tralian Pru­den­tial Reg­u­la­tion Au­thor­ity (APRA) wants the coun­try’s four big­gest lenders to raise their avail­able cap­i­tal by four to five per­cent­age points by 2023 from the cur­rent 14.5% of to­tal risk-weighted as­sets, ac­cord­ing to a dis­cus­sion pa­per on its web­site.

That would re­quire Aus­tralia’s ‘Big Four’ largest banks to raise be­tween A$67bil and A$83bil in ex­tra cap­i­tal over four years, they said in sep­a­rate state­ments to the stock ex­change.

APRA has al­ready or­dered the big banks to boost cap­i­tal twice since 2015 as it seeks to bar­ri­cade the sec­tor against global shocks.

The ex­tra cap­i­tal buf­fer would bring Aus­tralian banks in line with new in­ter­na­tional stan­dards de­vel­oped by the Basel Com­mit­tee on Bank­ing Su­per­vi­sion and adopted by Canada and Euro­pean Union coun­tries, it said.

Na­tional Aus­tralia Bank Ltd, Aus­tralia’s fourth-largest bank by mar­ket value, said it would need to in­crease its cap­i­tal by up to A$19bil and is­sue less se­nior debt, to meet the lat­est re­quire­ment.

West­pac Bank­ing Corp said it would need to in­crease its cap­i­tal by up to A$21bil, with cor­re­spond­ing re­duc­tions in other forms of fund­ing.

ANZ Bank­ing Group Ltd would need to raise up to A$20bil in ex­tra cap­i­tal, and Com­mon­wealth Bank of Aus­tralia be­tween A$18bil to A$23bil.

The four lenders hold a com­bined mar­ket share of more than 80%, rais­ing fears a bank fail­ure could gravely dam­age the broader econ­omy.

“The aim of these pro­pos­als and res­o­lu­tion plan­ning more broadly is to en­sure that the fail­ure of a fi­nan­cial in­sti­tu­tion can be re­solved in an or­derly fash­ion,” APRA chair­man Wayne By­ers said in a state­ment.

APRA said banks could use any form of cap­i­tal to meet the higher re­quire­ments.

It an­tic­i­pated most of in­creased buf­fer would be Tier 2 sub­or­di­nated debt cap­i­tal.

“This may dra­mat­i­cally al­ter the sup­ply/ de­mand dy­namic and take the Tier 2 mar­ket pric­ing into un­charted ter­ri­tory,” Bren­dan Sproules, a bank­ing an­a­lyst at Cit­i­group said.

Sub­or­di­nated debt stands to be re­paid only af­ter the se­nior debts of a com­pany have been paid, in the event of a liq­ui­da­tion.— Reuters

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