Australia's Big Four Banks Are Unfazed By APRA's New Capital Holding Requirements

Australia’s big four banks will need to set aside billions more in capital under new APRA regulations effective January 2016.

In an information paper issued today, APRA noted that the four were “systemically important” to Australia but should not be seen as “too big to fail”.

As of 1 January 2016, APRA wants banks to set aside 3.5% of their total risk-weighted assets, up from 2.5% currently, as a buffer to help them absorb losses instead of relying on Government bailouts.

That’s on top of APRA’s 4.5% minimum capital requirement for the common equity tier 1 ratio, which will remain unchanged.

Business Day reports that the new requirements could have implications for the big four’s dividend payments, but the APRA announcement hasn’t hurt share prices, with NAB, ANZ, CBA and WBC up slightly throughout this morning.

Westpac told shareholders this morning that it already had a 9.1% common equity tier 1 ratio and was “well placed to meet [APRA’s] updated requirements by the implementation date”.

NAB said it “expects to be able to meet the revised capital requirements through organic capital generation and, if required, through the settings under NAB’s dividend reinvestment plan”.

ANZ said its capital position was already above APRA’s new requirements. “Over time and through organic capital generation, ANZ may modestly increase its capital buffers from current levels,” it added.

In a note to clients this afternoon, CIMB analysts John Buonaccorsi and Asley Daiziell said they manintained their neutral rating on the sector, with add ratings on ANZ and NAB, hold on Westpac and reduce on CBA.

“Today’s announcement supports our view that the bank’s post-GFC capital rebuild isn’t finished yet,” they said.

“While the majors should be able to build toward APRA’s new target organically, we remain cautious on the banks’ capital return potential in FY14-15 and highlight that the D-SIB surcharge is likely to create a 1.0-1.5% drag on the sector’s structural ROE relative to FY13, all else being equal.”

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