Big banks rocket ahead

INVESTORS have rallied around Australia’s big banks, sending their shares soaring despite warnings shareholders and customers may bear the brunt of new rules designed to fortify their books.

The combined market value of the four major lenders ballooned by more than $14 billion yesterday after the banking regulator released its long-awaited blueprint to strengthen the sector.

Shares in all four banks jumped more than 3 per cent, led by ANZ with a barnstorming 4.2 per cent spike.

Under the Australian Prudential Regulation Authority blueprint, the banks will have to set aside billions of dollars more to buttress their books against the fallout from the next global financial crisis.

The regulator has lifted its target for a key capital ratio – in crude terms, the amount of cash banks set aside relative to the amount they lend out.

It has increased its minimum requirement for what is known as the common equity tier-1 ratio, from 9.5 per cent to 10.5 per cent.

The banks have 30 months to reach the higher threshold.

ANZ, the Commonwealth Bank, National Australia Bank and Westpac all said they were well placed to achieve the new benchmark.

Analysts had previously warned they might need to collectively raise as much as $20 billion – as they did when regulations were updated in 2015.

But the APRA blueprint in fact indicated the sum would be far more modest, industry experts said, providing a trigger for the stampede into bank stocks yesterday.

ANZ shares surged to $29.48, Westpac was next best, up 3.9 per cent, to $31.96. NAB shares rallied 3.3 per cent to $30.38 and the CBA notched a 3.2 per cent spike, to $83.97.

UBS analyst Jonathan Mott predicted the banks would lift their capital ratios beyond the regulator’s target, settling between 10.75 per cent and 11 per cent. As a result, the Commonwealth Bank would need to set aside $4.2 billion more, Westpac $1.5 billion, NAB $1.7 billion and ANZ $490 million, Mr Mott forecast.

Accounting heavyweight Ernst & Young said while the banks were well-placed to accommodate the changes, customers could be stung.

“There is no disputing the importance of a stronger and more resilient banking sector, but increasing capital levels may be a cost that is ultimately borne by consumers and businesses through increases in interest rates and fees and charges,” EY capital markets leader Tim Dring said.

Ratings agency Standard & Poor’s said it expected the banks should be able to meet the increased requirements through a combination of “dividend cuts, dividend reinvestment plans, or capital raising without any significant challenges”.

APRA played down the prospect of swinging rate rises, saying banks could lift ratios “organically” by retaining profit.