The prudential regulator is satisfied Australia’s major banks are now ‘unquestionably strong’ compared with their international peers, according to the benchmark set by the Financial System Inquiry.
In an update to its July 2015 International capital comparison study, APRA said the common equity tier 1 (CET1) ratio of the major banks is broadly in line with the benchmark suggested by the Financial System Inquiry (FSI).
The final report of the FSI, released in December 2014, recommended that APRA set the capital ratios of the major Australian banks at a level that will position them in the top quartile of internationally active banks – a level the FSI stated could be considered “unquestionably strong”.
APRA’s July 2015 report found the major banks wanting when their capital ratios were compared with international peers, stating the banks would need to increase their CET1 ratios by “around 70 basis points” to be positioned at the bottom of the fourth quartile internationally.
The July 2015 report used data based on the major banks’ capital adequacy ratios at 20 June 2014.
APRA’s International capital comparison update published in the regulator’s quarterly Insight newsletter this week took into account capital raising undertaken by the major banks, “particularly during the second half of 2015”.
“As detailed in APRA’s 2015 study, the major banks’ weighted average comparison CET1 ratio was estimated as 11.7 per cent as at June 2014. By December 2015, this ratio had increased by 180 basis points to 13.5 per cent,” the regulator said.
“The relative positioning of the Australian major banks’ CET1 ratios now seems broadly in line with the benchmark suggested by the FSI.”
However, APRA said the trend of international bank peers strengthening their capital ratios continues.
“Forthcoming international policy developments will also likely mean that Australian banks need to continue to improve their capital ratios in order to at least maintain, if not improve, their relative positioning,” it said.
“The final design and calibration of these reforms will not be decided until around the end of 2016, and it would be prudent for Australian ADIs to continue to plan for the likelihood of strengthened capital requirements in some areas.”
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