Banks finally have capital certainty

The Australian Prudential Regulation Authority's latest recommendations give the country's biggest banks much of the clarity around capital they have been waiting for, ANZ chief financial officer Shayne Elliott says, and the lender has a number of options available to ensure it meets the new requirements.

"APRA has given us a sense of how far away from the recommendations Australian banks are today."
Shayne Elliott, Chief Financial Officer, ANZ

Banks finally have capital certainty

Earlier this week, APRA announced the average credit-risk weighting for home loans held by banks would be required to rise from current levels of 16 per cent to at least 25 per cent. The changes will come into effect in July 2016, ahead of market expectations.

Speaking exclusively to BlueNotes on video, Elliott said the changes bring an end to an uncertain period that began last year in the wake of the federal government's Financial System Inquiry.

“What [APRA has] really done is given us certainty because the FSI made a bunch of recommendations and it has now come out and given certainty around the banks," he said.

“They have given some numbers around that and given a sense of how far away [from the recommendations] Australian banks are today."

While admitting the timing of the changes came earlier than expected, Elliott said the newfound certainty outweighed any minor issues that caused.

“What it means is when we look at our options for meeting [the requirements] it probably makes some of those look a little more practical than others – but it's certainly manageable," he said.

“It's really about how we manage the bank day to day. We generate capital as we generate profits and earnings – we can potentially retain those and generate capital that way. We can do better there in terms of productivity."

“We can manage our growth and our investments to make sure we organically generate capital. Then we have a whole bunch of other options. We can do things like dividend reinvestment plans, that's a way to bring some of those dividends back in the form of capital. We can put discounts on those; we can underwrite those."

“All of those options we have like our peers, and then in particular for ANZ we had indicated there were a few assets we have (some international, some local) we were looking to dispose of for strategic reasons that has the ancillary benefit of releasing some capital as well. There are a lot of options in there for us to play around with."

A transcript of this interview can be found here.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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