Australia’s regulator has proposed the nation’s banks adopt tough global capital rules by 2013 and has set out an aggressive compliance timetable.
This dispenses with the transitional arrangements on offer to less financially robust banks in other countries.
Under the Basel III reforms, regulators last year agreed to effectively triple the amount of capital reserves that the world’s banks must hold against losses. They agreed to phase in a range of new capital rules from January 2013 through to January 2019.
The Australian Prudential Regulation Authority on Tuesday said it wanted Australian banks to adopt the minimum tier one capital ratio of 6 per cent by 2013, two years ahead of the timetable allowed under Basel III’s phase-in arrangements.
The regulator also called on banks to adopt an additional 2.5 per cent capital conservation buffer by January 2016, three years ahead of schedule.
Brian Johnson, Sydney-based banking analyst with CLSA, said Australia was likely to be the first country in the world to fully comply with the Basel III capital rules.
“Apra has been incredibly pro-active. The banks like to whinge but at the end of the day they are already there,” he said.
Analysts have recently estimated that Australia’s banks have a tier one capital ratio of nearly 10 per cent.
The move comes even as global regulators elsewhere are poised to soften new rules that would require banks to set aside more liquid assets to guard against a funding crisis. This follows complaints by banks.
But Steven Munchenberg, chief executive of the Australian Bankers’ Association, questioned why the regulator was proposing a tight timetable. “There is an irony that the fact Australia’s banks are well capitalised is being used as a reason to fast-track the new capital requirements,” he said.
“If we did want to turn it into a positive, it is a sign that they are very well capitalised, especially at a time when many others are not so robust,” said Mr Munchenberg.
Australia’s four big retail banks – ANZ, Commonwealth Bank of Australia, National Australia Bank, and Westpac – are all AA rated, a ranking that is rare in global banking.
Stuart Scoular, a partner at PwC’s banking and capital markets unit, said in the short term Australia’s big banks were unlikely to need to raise fresh capital to meet their Basel capital obligations.
“In the longer term, however, both banks and smaller institutions will continue to pay close attention to the supply of capital. This will particularly be the case for banks that choose a non-organic growth strategy,” he said.
Apra’s proposed timetable was set out in a discussion paper before draft prudential standards are published early next year.
John Laker, Apra chairman, said the proposed capital reforms would strengthen the Australian banking system.
“By requiring ADIs [authorised deposit-taking institutions] to hold higher minimum levels of better quality capital, supplemented by minimum capital buffers, the reforms will enhance Apra’s current prudential capital framework,” he said.
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