ANZ chief financial officer Shayne Elliott has said the bank is in a strong position to deal with the new capital requirements announced by APRA in the past week.
Elliott said that the announcements had been “expected’ as they were a reaction by APRA to the recommendations of the Financial Services Inquiry (FSI) and that they had given certainty to the ANZ and the banking industry about what APRA and the FSI’s desire to make the majors and Macquarie “unquestionably strong” meant.
Elliott said the announcement by APRA on risk weights for mortgages had been “at the lower end of the recommendation” range of 25-30% from the FSI. He highlighted that the ANZ had a number of options to increase its capital base – some “more practical than others”.
The ANZ’s lower CET1 (common equity tier one) ratio than its peers is one of the hot topics in analyst circles. But Elliott said the banks have a different business mix and the ANZ has “a bigger business offshore for example, some of our peers have more mortgages etc. so we are all a little bit different. So, I don’t think it’s quite fair to just look to know that they should all be mathematically the same.”
He said the differences across the big bank capital ratios were “really immaterial in the big scheme of things,” because all the banks were in a band.
On the topic of raising the billions of dollars in additional capital, the ANZ will need to meet the increase APRA has mandated Elliot said the ANZ had plenty of options. One of them, retaining earnings rather than paying them out to shareholders, may not be viewed positively by investors in the short term but he added that the ANZ could structure its business so that it can “organically generate capital”.
He also highlighted that selling the Esanda finance business is also part of the plans to release capital back to the bank.
Interestingly, in terms of the overall ANZ strategy in Asia, Elliott appeared to put some of its businesses in the region on the chopping block.
“In terms of the partnerships, as we’ve said we’ve got around half a dozen minority stakes in banks in Asia, those are attractive properties to a range of different investors. But they are complicated situations, we are generally in a partner with other investors in those places so that will take time and work through,” he said.
After two days of selling, the ANZ closed higher yesterday at $33.05.