IMF urges more capital for Aussie banks

by Adam Smith27 Jan 2012

The IMF has urged Australian banks to increase their capital in a move certain to rile the majors.

A working paper released by the International Monetary Fund praised Australian banks for their progress toward meeting Basel III requirements. The IMF said Aussie banks were equipped to withstand "sizable shocks" in the mortgage market; However, the paper said a potential global downturn could necessitate more capital.

"Combining residential mortgage shocks with corporate losses expected at the peak of the global financial crisis would put more pressure on Australian banks’ capital. Therefore, it would be useful to consider the merits of higher capital requirements for systemically important domestic banks," the paper said.

The opinion is likely to draw the ire of the banking industry. APRA has already set benchmarks for Australian banks to meet Basel III liquidity standards ahead of the global deadline, and is considered one of the world's tougher prudential regulators. ANZ boss Mike Smith has previously criticised the Basel III requirements, saying they could cause a global shortage of capital.

The report comes as the IMF has also downgraded growth forecasts for Australia. According to the Australian Financial Review, the revised IMF estimates predict 3% growth for the Australian economy, well below the 4% forecast by the RBA.

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