ANZ Says Well Prepared For Any Capital Hikes As Regulator Issues Study Results

Tom Burroughes

14 July 2015

Australia and New Zealand Banking Group is planning to increase its capital to meet international standards designed to bolster the financial system, and changes suggested by regulators are in the range it has been planning for, the bank said yesterday.

The bank commented on the International Capital Comparison Study recently released by the Australian Prudential Regulation Authority.

The APRA study found that, relative to June 2014, Australian banks are well-capitalised. It also found that when reported on a more consistent basis relative to international peers, their common equity tier one (CET1) ratios – a key measure of financial strength at a bank - “would, on average, be in the order of 300 basis points higher”, according to a statement by ANZ.

The CET1 ratio measures a bank's core equity capital compared with its total risk-weighted assets, hence giving a measure of how financially robust a bank is. The tier one common capital ratio excludes any preferred shares or non-controlling interests when determining the calculation.

Banks around the world have been under regulatory pressure to bolster their capital ratios in the aftermath of the biggest financial crisis since the Great Depression.

ANZ said the APRA’s study showed that major Australian banks would require an increase of “around 70 basis points” in CET1 capital and at least 200 basis points in total capital to be placed in the top quartile of international banks.

“We have been planning for an increase in capital levels for some time following the changes to the Basel international capital framework and the recent Financial System Inquiry. In this regard our CET1 position has been further strengthened from the 8.3 per cent reported as at June 2014,” Shayne Elliott, chief financial officer at ANZ, said.

“APRA’s indication of an increase in CET1 from June 2014 is within the range we have been planning for. As we have said previously, we have a number of options for managing our capital including organic capital generation, balance sheet management and the disposal of non-core assets," he added.