New APRA funding hurdle plans set to challenge banks
The Australian April 5, 2016 2:25pm
Michael Roddan
The Commonwealth Bank may be the only big four bank that is ready for APRA’s tough new net stable funding ratio rules, according to an analysis that shows National Australia Bank lagging its rivals in the fresh stability stakes.
The Australian Prudential Regulation Authority on Thursday threw a new hurdle in front of the local banking industry, outlining plans to slap new rules on lenders targeting their reliance on short-term wholesale funding by the start of 2018.
The rules will require 15 of Australia’s largest banks to maintain a net stable funding ratio of at least 100 per cent, designed to ensure banks keep a stable funding profile by shifting them across to longer-term funding such as three and five year bonds.
“We see APRA’s latest proposal as slightly negative relative to earlier expectations,” Macquarie said in a research note.
The new hurdles will hit AMP Bank, ANZ, Bendigo and Adelaide Bank, Bank of Queensland, CBA, Macquarie Group, NAB, Suncorp and Westpac, while some foreign lenders operating in Australia also must comply.
Researchers at Macquarie believe CBA is currently the only big four bank to meet the minimum funding ratio requirement, estimating the country’s biggest bank has a ratio at 101 per cent currently. NAB, the researchers said, is lagging its rivals with a ratio of 96 per cent behind ANZ and Westpac on 97 and 98 per cent.
“Based on our estimates and assuming no changes in deposit market shares, we estimate that ANZ, NAB and WBC will need to raise an additional $14 billion, $19bn and $9bn of term debt, respectively, by 2018,” Macquarie said.
The researchers believe APRA will give the banks time to transition to a net stable funding ratio of 105 per cent by 2020, but this would require banks to find another $21bn to $40bn worth of additional term funding over the next four years. This would shave around 2 to 5 per cent off bank earnings and 3 to 7 per cent off profit margins.
The new rules generally favour traditional baking activity such as basic lending and deposit taking, positioning banks with hefty retail businesses best placed to deal with the requirements. A household mortgage financed by stable deposits would get have funding ratio of around 145 per cent.
Macquarie said the regional banks were likely to have net stable funding ratios over 100 per cent given their balance sheets are skewed towards mortgages.