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APRA unveils new bank capital reserve rule

Stuart Condie  |  19 Jul 2017Text size  Decrease  Increase  |  

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SYDNEY - [AAP] Australia's four biggest banks will have to raise billions of dollars of extra cash by 2020 after the country's prudential regulator raised the amount of top quality capital they must hold.

The Australian Prudential Regulatory Authority said on Wednesday that, in order to meet the "unquestionably strong" benchmark in the 2014 financial system inquiry, banks will be required to have Tier 1 capital ratios of 10.5 per cent by January 2020.

That's means the banks, which have already lifted their capital ratios over the past few years, must decide whether they can build their capital reserves through measures such as pricing or asset sales, or through the sort of capital raisings they held in 2015.

The big four said in May their Tier 1 capital ratios were between 9.6 per cent and 10.1 per cent.

"APRA's objective in establishing unquestionably strong capital requirements is to establish a banking system that can readily withstand periods of adversity without jeopardising its core function of financial intermediation for the Australian community," APRA chairman Wayne Byres said in a statement.

"Capital levels that are unquestionably strong will undoubtedly equip the Australian banking sector to better handle adversity in the future, and reduce the need for public sector support."

Mr Byres said the move was the culmination of nearly a decade of reform aimed at building capital strength in the financial system following the global financial crisis.

"APRA believes this latest capital strengthening can be achieved in an orderly way," he said.

Investors seemed to agree with Mr Byres' assessment, sending the big banks' shares soaring in early trade.

ANZ (ASX: ANZ), whose current ratio is the highest among the big four, was the star performer, with its shares up 3.8 per cent at 1035 AEST to $29.38.

Westpac (ASX: WBC), National Australia Bank (ASX: NAB) and Commonwealth Bank (ASX: CBA) were also each up more than 3 per cent.

ANZ chief financial officer Michelle Jablko indicated the bank was comfortable with the new requirement.

"With the benefits from announced but yet to be completed asset sales, ANZ is well-placed to achieve the strengthened capital standards, and to do so well ahead of the schedule outlined by APRA", Ms Jablko said in a statement on Wednesday.

ANZ, when it announced its first-half results in May, said its common equity Tier 1 capital ratio was at 10.1 per cent.

Westpac's was at 10.0 per cent at the same time, while NAB's was 10.1 per cent.

Commonwealth, the country's largest bank, had the lowest tier one capital ratio with 9.6 per cent at the time of its third-quarter trading update in May.


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