APRA move good for banks and buyers

A credit ratings agency and a banking body have voiced their support for higher capital being held by Australia’s biggest banks for residential mortgages.

Moody’s Investors Service said APRA’s decision to raise the capital requirements for ANZ, Commonwealth Bank, NAB, Westpac and Macquarie Bank is a credit positive for their risk profiles.

“The larger capital requirement will provide a greater buffer against unexpected losses in the mortgage portfolios of these banks,” Moody’s vice president, Frank Mirenzi, said.

Mr Mirenzi said APRA’s announcement is the first step in strengthening the banks’ central positions and confirms the long-held view by Moody’s that the major banks have “entered a period of capital accumulation as a result of increasing capital intensity”.

“The additional capital that will be required to be held against residential mortgages will better align the banks’ capital positions with the growing tail risks arising from their residential mortgage exposures during a period of high investor demand, and an associated rapid acceleration in house prices in Sydney and Melbourne,” he said.

Also commenting on the change, the Customer Owned Banking Association said APRA’s decision has helped create a more even playing field in prudential regulation of the home loan market.

“APRA’s move will allow customer-owned banking institutions to maintain sustainable, competitive pressure on the major banks. This is good news for home buyers,” the association’s chief executive, Mark Degotardi, said.

“Reducing this competitive distortion will promote a vibrant, diverse home loan market.”

Mr Degotardi added that if the major banks seek to increase home loan interest rates in response to APRA’s new capital settings, customer-owned banks “look forward” to taking away some of their market share.

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