From Clancy Yeates:
APRA on Monday updated a study that showed the common equity tier 1 (CET1) capital ratio of Australia’s major banks were now in the top quartile of banks internationally – a key target set by the 2014 financial system inquiry……APRA said the banks’ average CET1 ratios were 13.5 per cent of assets at December 2015, up from 11.7 per cent in June 2014.
The comparisons are significant because the 2014 financial system inquiry (FSI), chaired by former Commonwealth Bank chief executive David Murray, said that in order to be “unquestionably strong”, the banks’ capital position should be among the top quartile globally.”
….Echoing previous comments from APRA chairman Wayne Byres that capital requirements would rise “somewhat higher”, APRA said global banking regulators were likely to settle on rules later this year that would ratchet up how much capital banks must set aside. This will probably affect Australian lenders, too.
….It said the final shape of these rules would not be known until late this year, and it would be “prudent” for banks to plan for “the likelihood of strengthened capital requirements in some areas”.
While increased capital requirements may reduce bank profitability and slow lending growth in the medium-term, an increased capital buffer is critical for long-term sustainability of the industry and the broader economy. The pay-off banks should see is lower risk premiums for both deposit and liability funding, more stable growth and higher equity valuations.