Major bank to increase mortgage risk weights

by Julia Corderoy09 Aug 2016
Major lender ANZ will increase its mortgage risk weights after the banking regulator, APRA, affirmed its intention to lift Australian residential mortgage risk weights by 25%.

In a statement released by ANZ, the bank stated that the exact increase has not been confirmed, but it expects its residential mortgage risk weights to increase to be within the 25%-30% range recommended by the Financial Services Inquiry. 

Last week, APRA announced that it is recalibrating the risk weights on mortgage lending by authorised deposit taking institutions (ADIs) accredited to use an internal ratings based (IRB) approach to credit risk. 

APRA originally announced ADIs adopting an IRB approach would be required to lift their residential mortgage risk weights to an average of at least 25% in July 2015. However, following concerns further modeling changes would have seen an average risk weight that was well in excess 25%, APRA announced the recalibration.

“The impact of these modelling changes, when combined with the adjustment proposed in July 2015, would have been an average risk weight that was well in excess of the 25% risk weight targeted by APRA in its original announcement,” the regulator said.

“APRA has therefore advised the relevant ADIs that it will recalibrate the adjustment advised in July 2015, with a view to ensuring the original target of an average risk weight for Australian residential mortgages of at least 25% is achieved, while not significantly exceeding this target.”

According to ANZ, the impact of APRA’s changes on its CET1 ratio would approximately 9%. However, the aggregate capital impact would be offset by the equity raising undertaken by ANZ in August and September 2015.

ANZ said its increased risk weights are expected to be effective in the first quarter of FY2017.