Australia regulator lifts bank capital measure for home loans

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Published: July 20, 2015 8:45:52 AM

The Australian Prudential Regulatory Authority (APRA) will increase the amount of bank capital for residential mortgage loans to strengthen the finances of the nation's largest lenders and put them on par with international peers.

The Australian Prudential Regulatory Authority (APRA) will increase the amount of bank capital for residential mortgage loans to strengthen the finances of the nation’s largest lenders and put them on par with international peers.

Average risk weight on home loan exposures will rise to at least 25 percent, from 16 percent currently, the lower end of an expected 25 to 30 percent range.

The measure, to take effect on July 1, 2016, will apply to the nation’s top banks, namely Australia and New Zealand Banking Group, Commonwealth Bank of Australia (CBA), Macquarie Bank, National Australia Bank (NAB)  and Westpac Banking Corp.

APRA estimated banks would need to increase their capital requirements by about 80 basis points to meet the new measure for residential mortgages.

The change would go part of the way to meeting the 200 basis point increase in capital ratios that the regulator last week recommended for Australia’s banks to ensure they were “unquestionably strong” and among the top quartile of international lenders.

Commonwealth Bank said it expected the new meausure to increase the amount of Common Equity Tier 1 (CET1) required for Australian residential mortgages by approximately 95 basis points from July 1 2016.

NAB said it expected the impact to be around 70 basis points.

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