The focus of Australian banks’ record capital-raising efforts is turning to Westpac Banking Corp., after rival Commonwealth Bank of Australia announced its A$5 billion ($3.7 billion) rights offer on Wednesday.
Westpac has the lowest capital ratio among the nation’s four largest lenders. The average forecast in a survey of five analysts by Bloomberg is for the Sydney-based bank to raise about A$6.5 billion in the next two years to reach a common equity Tier 1 capital ratio of 10 percent. That’s the minimum level required to meet future rule changes for bank capital, according to the analysts.
The four biggest banks are amassing capital to meet stricter regulation partially aimed at sheltering them from any downturn in the nation’s booming housing market. The lenders have revealed plans to raise A$16 billion -- about half of what they need to make up the shortfall, according to the survey. Westpac has raised less money than its main competitors this year.
“Regulatory capital requirements have increased and with three of the big four raising equity, the attention is squarely on Westpac now,” said Angus Gluskie, who oversees $550 million in assets including the four bank shares as managing director at White Funds Management in Sydney. “For Westpac, its inevitable now. They need to move at some point.”
The lenders are adding equity after the Australian Prudential Regulation Authority last month increased average mortgage risk weights, or the capital the banks need to hold against potential home-loan losses. APRA also said lenders would need to add 200 basis points of capital to be considered among the world’s safest.
National Australia Bank Ltd. drew A$5.5 billion from a rights offering in May, which was the largest of its type in the country. Australia & New Zealand Banking Group Ltd. is seeking A$3 billion after garnering A$480 million earlier this year.
Westpac has so far raised A$2 billion though a dividend reinvestment plan, where investors swap all or part of their dividends for new shares. It also relinquished majority control of its funds-management business BT Investment Management Ltd. in June to add as much as 15 basis points to its Tier 1 capital ratio, a measure of its ability to absorb for future losses.
David Lording, a Sydney-based spokesman for Westpac, referred inquiries about the bank’s capital-raising plans to a July 20 statement, in which the lender said if the mortgage risk-weight changes were effective immediately, it would need A$3 billion to lift its CET1 ratio to the top end of its preferred range of 8.75 percent to 9.25 percent.
Westpac, which had a Tier 1 capital ratio of 8.8 percent as of March 31, is due to report its updated capital position on Aug. 17. Commonwealth Bank expects its ratio to rise to 10.4 percent after its share sale, compared with 9.1 percent as of June 30. ANZ said its level will probably rise to 9.3 percent, while National Australia’s was 9.94 percent as of June.
The analysts in the Bloomberg survey are emphasizing a Tier 1 ratio of 10 percent to factor in further changes in global bank capital rules and the need for the Australian lenders to maintain a buffer over minimum requirements.
While the four banks all exceed the APRA mandate for an 8 percent minimum common equity Tier 1 ratio, the increased mortgage risk weights, which take effect next July, would reduce those levels.
ANZ is estimated to need a further A$3.5 billion, according to the average prediction in the survey. National Australia and Commonwealth Bank will need about A$3 billion each to meet the target after taking into consideration all potential regulatory changes, the survey showed.
The share sale “buys some stability” for ANZ which has lined up asset sales worth A$5 billion that may add to capital, Chief Executive Officer Mike Smith said Aug. 6. Meaghan Telford, a Melbourne-based National Australia spokeswoman, said Wednesday the bank had no comment beyond those it made in May.
When asked about the prospects of further capital raising on a conference call Wednesday, Commonwealth Bank CEO Ian Narev said the lender’s capital levels were already among the world’s safest and the rights offer will further boost them.
“Capital requirements are clearly rising,” said David Liu, who helps oversee A$450 million including the four bank shares as head of research at Above the Index Asset Management Pty in Sydney. “Once they boost capital levels to meet some of the immediate changes, they can then rely on organic capital generation and dividend reinvestment plans.”