From Morgans:
APRA has announced accredited banks, using the internal ratings-based (IRB) approach to credit risk, will see average risk-weights on mortgages increased from approximately 16% to at least 25%.
- Changes will come into effect from 1st of July 2016.
- APRA noted today’s announcement is an interim measure. APRA will wait for the outcome of the Basel committees broader review on risk weights before finalising its measures permanently.
- APRA said last week that for the Australian banks to be in the top quartile of banks globally they needed to lift capital levels by c200bps. Today’s announcement would capture c80bps of this increase.
- Only the big four banks and Macquarie are affected by today’s announcement immediately. The regional banks and Suncorp are not yet IRB accredited banks.
- Assuming the Australian banks go to a 10.5% CET1 ratio level, we estimate today’s announcement increases capital for individual banks between A$2bn-A$4.5bn respectively. WBC is clearly the most affected by today’s changes per the chart below
- Overall, we estimate the big 4 banks need to increase capital by cA$24bn before factoring in any additional changes from Basel 4 recommendations at the end of the year.
