The Basel Committee on Banking Supervision’s second consultation paper on the standardised approach for credit risk, released in December last year, sets out the minimum international expectations of the Basel Committee with respect to the capital treatment of a range of asset classes.
The most controversial aspect of the consultation paper is the Basel Committee’s proposal to levy higher capital on a subset of investment loans. If implemented, the changes would see banks hold two to three times more capital against investor loans than owner-occupied loans.
However, ANZ chief executive Shayne Elliott says the proposal needs further debate.
“We should have a discussion about the facts and not make blanket statements, for example, that all investor loans are inherently riskier than owner-occupied. That doesn’t bear scrutiny,” Mr Elliott said at a media conference yesterday.
ANZ’s acting chief financial officer Graham Hodges acknowledged that while the Basel Committee is trying to create a global standard, not all markets are the same.
“Our historical experience around investor loans in the Australian market is actually they have been lower risk than owner-occupied loans, largely because of the individuals who come in and buy investor loans,” Mr Hodges said.
“They typically have their own home and have multiple sources of income. That is not necessarily the case in other jurisdictions globally.
“I think one of the things that the Basel people will have to work through is how we actually join up the dots and [ask] what is the purpose of the Basel rules. Is it to really align capital with risk or just to have the same approach irrespective of risk?”
The Basel consultation paper closed for comment in March.