Australia’s largest banks will need to hold at least A$28 billion ($21 billion) in extra capital to rank among the safest lenders globally, according to Goldman Sachs Group Inc. and Credit Suisse Group AG.
The estimates followed a study released Monday by the nation’s banking regulator that found the four lenders would need to boost their capital ratios by at least 2 percentage points to reach the top quartile of global banks.
While not binding, the Australian Prudential Regulation Authority’s report is an effort to add clarity after a government review last December recommended banks have capital levels held by the top 25 percent of lenders globally.
“Today APRA have removed any ambiguity on their assessment of Australian banks’ capital-adequacy strength,” CLSA’s Sydney-based analysts Brian Johnson and Ed Henning wrote in a note to investors. “Australian banks can no longer state they don’t know” the extent of their shortfall, they wrote.
While Australia’s biggest banks have higher capital ratios than the 11.6 percent median of 98 lenders surveyed, they have less than the 13.3 percent held by the top quartile, the APRA report showed. The study will assist in setting capital levels, the watchdog said, while adding that it “does not intend to tightly tie” the requirements to a moving global benchmark.
Goldman Sachs Sydney-based analysts led by Andrew Lyons estimated the capital shortfall at A$28 billion. Credit Suisse researchers led by Jarrod Martin put it at about A$29 billion.
APRA’s study measured common equity Tier 1 ratios at the country’s major lenders -- Australia & New Zealand Banking Group Ltd., Commonwealth Bank of Australia, National Australia Bank Ltd. and Westpac Banking Corp. -- against global peers. Wells Fargo & Co., HSBC Holdings Plc, JPMorgan Chase & Co. and Royal Bank of Canada were among lenders included in the study.
Shares of National Australia, which said it was well positioned to meet any additional capital requirements, fell 0.6 percent at the close of trading in Sydney. ANZ Bank, which said it has options including asset sales and retained earnings to shore up its capital, dropped 1.1 percent. Commonwealth Bank lost 0.7 percent and Westpac slid 0.4 percent. The benchmark S&P/ASX 200 index slipped 0.3 percent.
The top quartile positioning will be “a useful sense check of the strength” of the Australian lenders, APRA said. Any changes to minimum capital requirements were “likely to be less material” for smaller banks, the regulator said.
The regulator also said it would respond “shortly” to a recommendation by the review committee to set aside more capital for potential mortgage losses. Any increase will boost the lenders’ relative capital position, it said.