APRA's new bank capital rules are out -- and financial stocks are surging

Photo: Dean Mouhtaropoulos/Getty Images

Australian bank stocks are surging following APRA’s announcement by on capital requirements to make them “unquestionably strong”.

A short time ago , ANZ and Westpac were both up by around 3.3%

NAB was 3% higher, while Commonwealth Bank was up 2.7%. Macquarie Bank initially rose by 0.7% before falling back to a gain of around 0.15%.

Among the regional lenders, Suncorp was up 1.3% and Bank of Queensland rose by 1.8%. Bendigo & Adelaide Bank reversed the trend, falling by 1.1%.

Overall the ASX financials index climbed by 2.7% to start the session, pulling the local market 0.7% higher in early trade.

Source: Investing.com

The announcement by APRA said that “the four major Australian banks need to have CET1 capital ratios of at least 10.5% to meet the ‘unquestionably strong’ benchmark”.

The banks will be expected to implement the new capital requirements by January 1, 2020.

This table by UBS provides a summary of the CET1 capital ratios maintained by the big 4 banks, as at April this year:

Source: UBS

It shows that the major banks were already boosting their Tier-1 capital ratios in anticipation of today’s announcement.

ANZ’s capital position is already strong, while Westpac raised additional capital earlier this year.

APRA said that the new capital requirements were likely to be financed from the big bank’s existing capital bases, without having to raise further capital externally.

UBS forecast that the sector as a whole will meet APRA’s timeline by the end of 2019, on track with the requirements outlined this morning.

But APRA held off announcing any increases to the risk-weightings that banks currently apply in calculating their tier-1 capital levels.

The regulator said that any changes in the risk-weightings of mortgage-related assets as part of capital adequacy calculations will be confirmed later this year, pending the completion of international banking reforms.

The ASX200 financials index has fallen 8.9% since May 1, losing ground in the wake of the federal government’s bank levy as well as speculation around the capital adequacy changes by APRA.

That negative positioning has clearly reversed this morning, with the market assessing that APRA has been relatively easy on the big banks in determining what’s “unquestionably strong”.

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