Major banks respond to APRA's capital raising

by Julia Corderoy21 Jul 2015
The major banks have responded to APRA’s announcement of an increase in the amount of capital required to be held by lenders against residential mortgage lending.

Australia’s biggest mortgage lender, Commonwealth Bank – which currently holds 27% of Australia’s $1.36 trillion mortgage market – said the change would increase the amount of common equity tier 1 (CET1) capital required for Australian residential mortgages by approximately 95 basis points from July next year.

CBA’s chief financial officer, David Craig is optimistic about the increase, saying it will further improve the bank’s position relative to international peers.

“Financial strength, including a strong capital position, is a pillar of CBA’s strategy. In expectation of APRA’s recent announcements, CBA has been working on a number of options for managing our capital over the coming year. We will provide more commentary on these announcements when we present our annual results on 12 August 2015,” he said.

Australia’s second largest mortgage lender, Westpac says they are well-placed to meet the new requirement. According to the major bank, the change would require a further $3 billion of capital to lift its CET1 to the top end of the bank's preferred range of 8.75% to 9.25%.

However, Westpac’s chief financial officer, Peter King says increasing capital requirements against mortgage lending will not benefit consumers.

“As we outlined in our submission to the FSI, there is no strong evidence that increasing mortgage risk weights for banks using advanced IRB will provide further benefits for consumers in an already competitive lending market.

“While Westpac is well-placed to meet these changes, increased capital does come at a cost. The cost of holding higher capital will inevitably be borne by customers and shareholders.”

NAB says the impact would be around 70 basis points, based on its March capital ratios.  According to the lender, the average risk weight of its total Australian and New Zealand mortgage portfolio is expected to increase from 18.2% at 31 March 2015 to approximately 27.7% post implementation. 

ANZ says the change will require it to allocate an additional $2.3 billion of capital to its Australian mortgage lending book. The fourth largest home loan lender says the impact to its capital position of approximately 55 basis points is largely as expected following the FSI.