Of the major banks, ANZ is “best placed” to meet the Australian Prudential Regulation Authority’s “unquestionably strong” tier-one ratio without needing to raise capital on market.
In its third quarter 2017 update for ANZ, investment research agency Morningstar said that — allowing for organic capital growth — the bank will soon report surplus capital. Further, the bank could potentially commence capital management initiatives and commence share buybacks in late 2019.
APRA announced in July that, in order for banks to meet an “unquestionably strong” capital benchmark, they would need to have a common equity tier-one (CET1) capital ratio of at least 10.5 per cent.
Explaining its reasoning, Morningstar said that, as at 30 June, the CET1 ratios at CBA and NAB were 10.1 per cent and 9.7 per cent, respectively, and the research agency predicted that Westpac will post a CET1 ratio of 9.8 per cent on 21 August, when it updates its capital position.
ANZ is in a better position, Morningstar said.
“APRA’s base CET1 ratio was 9.8 per cent as at 30 June 2017, with ANZ Bank estimating another 0.70 per cent release of CET1 capital on completion of asset sales," Morningstar commented. "The additional capital takes the bank’s CET1 ratio to a peer leading pro forma 10.5 per cent, in line with APRA’s new minimum benchmark required by 1 January 2020.
“We maintain our position ANZ Bank is best placed of the four major banks to meet APRA’s higher CET1 ratio without the need to raise capital on market.”
Business ‘on track’ to satisfy investment limit
Morningstar also commended ANZ’s lending portfolio, noting that the bank was “on track to achieve APRA prudential restrictions around investor and interest-only loans”.
The bank’s above-system growth in housing loans was primarily driven by owner-occupier loan growth, and as such, Morningstar forecast the bank to be well placed to remain below APRA’s 30 per cent cap on new interest-only lending.
Additionally, Morningstar was “impressed” by the bank’s solid deposit growth, which was up by 2.3 per cent, with lending up by 2.0 per cent during the quarter.
[Related: CBA ‘has work to do’ on APRA benchmark]