Banks say regulator is setting them up to fail

AUSTRALIA’S big banks may struggle to raise the amount of extra capital they require under new rules proposed by the country’s banking regulator, a senior executive at Westpac Banking Corporation has said.

The mooted requirements, which the country’s four largest lenders said would mean they need to raise between $67 and $83 billion over four years are sound in principle but tough to achieve, Westpac treasurer Curt Zuber said.

“As we go through cycles, it is potentially problematic for the banks to get the volumes they need in an economic way for the system which allows for the balance we want to achieve,” he said.

The comments signal the first public pushback from the banks since the proposal — the third such request in as many years — was announced by the Australian Prudential Regulatory Authority last November.

It also comes as the sector braces for tougher scrutiny after a scathing public inquiry into the finance industry uncovered widespread bad behaviour and mismanagement.

“It is a big number … the market as it stands today is not big enough to cope with that level of issues,” Morningstar banking analyst David Ellis said.

“But as the banks continue to raise tier two bonds, their balance sheets become strong- er as far as the buyers are concerned,” he said, adding that overall it would probably increase funding costs only modestly.

APRA said it wants the country’s four biggest lenders to raise their available capital by 4 to 5 percentage points by 2023 from the current 14.5 per cent of total risk-weighted assets.

The 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, APRA said Banks could use any form of capital to meet the higher requirements, although APRA anticipated the most economical way to source it would be Tier 2 subordinated debt capital.

It is seeking feedback from the lenders until February 8.

National Australia Bank Ltd head of group funding Eva Zileli told the Financial Review that would make Australian banks one of the largest issuers of tier 2 debt globally.

The bank had no further comment when contacted by Reuters.

Westpac, Australia and New Zealand Banking Group Ltd, did not immediately respond to requests for comment on Monday.

Commonwealth Bank of Australia and APRA had no comment.