skip to main content
Close Icon We use cookies to improve your website experience.  To learn about our use of cookies and how you can manage your cookie settings, please see our Cookie Policy.  By continuing to use the website, you consent to our use of cookies.
Global Search Configuration

(07/19) [SNAPSHOT: AUSSIE CREDIT & APRA'S NEW CAPITAL RULES]

Amidst much anticipation, the Australian Prudential Financial Regulatory Authority (APRA) outlined today the "quantum and timing" of new capital requirements for Australian Banks, in order to make the sector "unquestionably strong". To meet this new benchmark:

  • For the Big 4 Banks, APRA has raised the required CET1 capital ratio by 150bps to at least 10.5%
  • For Regional Banks and other ADIs, the effective increase in capital requirements will be around 50bp
  • All banks are expected to meet the requirement by1 January 2020

Implications

  • APRA expects that for the Big Four Banks; the increased capital requirements will translate into the need for an increase in CET1 capital ratios, on average, of around 100bps above their Dec 2016 levels.
  • NAB analysts equate this to an around Aud 16bn in additional equity for the big Four banks over current levels
  • Given the two and half year time frame, the required capital is being deemed as highly achievable by organic means ie mostly via retained earnings.
  • For regional banks, the considerably smaller 50bps requirement is also expected to be comfortably achieved given the longer than expected time frame and already strong capital position.

Australian Bank Credit - Extending the "Unquestionably strong" theme

Limited to no impact is expected on Australian bank credit, which have remained resilient in anticipation of today's new capital rules (despite being heavily sold pre-emptively on the equity front) and in the face of recent headwinds, which saw a hawkish set of RBA minutes for July bring forward rate expectations and A$ appreciation. Initial interpretation of the rules has also suggested that APRA's "unquestionably strong" capital ratios have proved less punitive (both in terms of quantum and timing) than feared.

Favorable funding conditions, as such, are likely to ensue for Australia's Big 4 Banks, which continue to be core issuers in both the offshore and domestic primary space.

According to IGM's database, big 4 Australian banks (incl their intl branches) raised a USD equiv of Usd 47.776 bn from the primary market YTD via 104 deals. Key funding source remains the international USD market. However of this. a quarter or 26 of the deals on an equiv Usd 14.539bn were raised from the domestic AUD market.

Domestic supply was in fact bolstered yesterday by CBA's Aud 1.85 bn three part deal, comprising a 5yr FRN and FX, which priced at a tight 3-mth BBSW+88bp, but top end of earlier +86-89bps guidance and a 10.5yr fixed, which priced in line with guidance at +105bps for issue price of 98.582.

(michelle.kwek@informagm.com)

Please refer to our quarterly reviews on the AUD bond market for an update and breakdown of the market, including quotes from key domestic DCM players. For a copy of the latest Q2 Update and Beyond, please click here and or notify us if you wish to receive this report moving forward.

Recommended Articles

  • IGM Credit, IGM FX and Rates

    The Context 08.03.20

    03 Aug 2020

    Read more from The Context and subscribe to have it delivered to your inbox each week!

    Topics Industry News

  • IGM Credit, IGM FX and Rates

    China Insight: Politburo Re-affirmed Bias in Favour of Less Dovish Policy

    By Tim Cheung 03 Aug 2020

    Xinhua News Agency reported the Politburo held a meeting on the economy on 30 July (Thursday). The CCP also held a meeting with non-CCP political parties and non-political representatives. President Xi chaired both meetings. Compared to the meeting held on 17 April, we note some changes in wording were made to the remarks on monetary and fiscal policies in the 30 July meeting. 30 July meeting (as per Xinhua News Agency): - "While requiring full implementation of macro policies, the meeting called for pursuing a more proactive and effective fiscal policy that delivers solid outcomes, and a more flexible and appropriate monetary policy that targets sound results, according to the meeting". 17 April Meeting (as per Xinhua News Agency): - "Monetary policies should be more flexible and balanced and instruments such as reserve requirement ratio cuts, interest rate reductions and reloans should be fully leveraged to ensure reasonable and sufficient liquidity and a lower interest rate in the loan market, the meeting said, stressing the need to channel capital into the real economy, especially medium-sized, small and micro enterprises".

    Topics Industry News

  • IGM Credit, IGM FX and Rates

    The Context 07.27.20

    27 Jul 2020

    Read more from The Context and subscribe to have it delivered to your inbox each week!

    Topics Industry News

;

Any questions? Speak to a specialist

Would you like to request sample data or analysis from Informa Financial Intelligence? 

See how our tailored solutions can help you gain a competitive advantage: