People
&Markets
APRA plans
to harmonise
capital rules
Australia’s top banking regulator is
proposing changes to how the country’s
banks calculate their capital ratios in
order to bring them more in line with
international norms.
The AUSTRALIAN PRUDENTIAL REGULATION
AUTHORITY published a consultation last
Tuesday, which it said would make it easier
for international investors to understand
and thus for banks to raise funds offshore.
“APRA’s robust capital framework
improves the quality and quantity of
THEûCAPITALûHELDûBYû!$)SûAUTHORISEDû
DEPOSIT
TAKINGûINSTITUTIONS ûBUTûMAKESû
international comparisons more complex,”
!02!û#HAIRMANû7AYNEû"YRESûSAID
“The reliance of the Australian banking
system on international markets for
funding makes it important that investors
UNDERSTANDûANDûHAVEûCONlDENCEûINûTHEIRû
capital strength during ordinary times and
in periods of market disruption.”
!USTRALIASû"IGû&OURûBANKSûREPORTûMUCHû
lower common equity tier one ratios
than other banks of comparative strength
because of the more conservative approach
taken by APRA in implementing capital
REQUIREMENTSûSETûBYûTHEû"ASELû#OMMITTEEû
ONû"ANKINGû3UPERVISION ûPARTICULARLYû
around risk weighting for certain assets.
Australia’s major banks haveresponded to this by publishing their own
internationally comparable ratios, although
there are concerns that since this is not
sanctioned by APRA, it creates confusion
for investors.
The regulator put forward two suggested
SOLUTIONSûINûITSûCONSULTATIONû4HEûlRSTû
would involve banks continuing to report
using the current APRA standards, but
the regulator would also develop its ownmethodology for calculating internationally
comparable ratios.
The second would mean APRA scrapping
its current methodology in favour of a more
internationally harmonised one. In order to
make sure that banks maintain the same
relative capital position, APRA would raise
the minimum capital requirements.
APRA said in the consultation paper it
remained open to maintaining the current
system.
It also said that the proposals would not
result in a change to the actual amount of
capital banks need to hold.APRA has frequently announced changes
to the calculation of capital ratios since it
outlined in July last year plans to ensure
the country’s banks were “unquestionably
strong”, but has maintained that such
changes would not lead to banks having to
generate more capital in real terms.
The guidelines, which stemmed from the
Australian government’s Financial System
Inquiry, stipulate that Australia’s four
major banks must maintain a minimum
CET1 ratio of 10.5% from January 1, 2020.
As of March 31, Australia and New
:EALANDû"ANKINGû'ROUPûHADûAû#%4ûRATIOû
OFû û#OMMONWEALTHû"ANKûOFû!USTRALIASû
WASû û.ATIONALû!USTRALIAû"ANKûHADûAû
#%4ûRATIOûOFûûANDû7ESTPACû"ANKINGû
Corporation’s was 10.5%.
"ASEDûONûINTERNATIONALûSTANDARDS û!.:Sû
#%4ûRATIOûWASû û#"!SûWASû û
.!"SûWASûûANDû7ESTPACSûWASû
The latter places three of the four majors
within the top quartile of international
banks – an informal target the FSI set in
$ECEMBERû
The CET1 threshold for the top 25%
stood at 13.1% in June 2015, the last time it
WASûCALCULATEDûBYûTHEû"ASELû#OMMITTEEûONû
"ANKINGû3UPERVISION
Since the global top 25% have tended to
increase their CET1 ratios by approximately
25bp–35bp each half year, according to
APRA, the 75% threshold should have been
AROUNDûnûASûOFû*UNEû
Respondents have until November 2 to
submit their feedback.
THOMAS BLOTT
(Additional reporting by John Weavers)SBI posts surprise quarterly loss
STATE BANK OF INDIA recorded a surprise
third consecutive quarterly loss because
of a spike in provisions linked to the
depreciation in the value of its bond
portfolio.
India’s largest bank by assets reported a
LOSSûOFû2SBNû53M ûFORûTHEûQUARTERû
ENDEDû*UNEûûCOMPAREDûWITHûAûNETûPROlTû
of Rs20.06bn a year ago.
This was the third quarter in a row that
the Indian state-owned bank has reported
a loss, having booked a record loss of
Rs77.18bn for the January-March quarter.
)TSûLATESTûSETûOFûlGURESûWEREûLARGELYûAû
result of a decline in the value of its bond
portfolio, due to rising interest rates in India.
This prompted the bank to recognise aloss of Rs58.93bn on investments during
the quarter.
4HEû2ESERVEû"ANKûOFû)NDIAûALLOWSûBANKSû
to stagger these losses across four quarters,
ALTHOUGHû3")ûOPTEDûTOûRECOGNISEûTHEMûINûAû
single quarter instead.
3")SûEARNINGSûWEREûALSOûWEIGHEDûDOWNû
by higher provisions for bad loans, which
stood at Rs192.28bn in June, an increase of
115% year on year.
The spike in provisions was largely
attributable to accounts that have been
referred to the National Company Law
Tribunal, which handles the resolution of
banks’ bad loans under India’s Insolvency
ANDû"ANKRUPTCYû#ODE
The bank’s provisions fell 32% quarteron quarter and its overall gross NPL ratio
declined by 22bp to 10.69% during the same
period.
)TûALSOûRECORDEDûAûûINCREASEûINûNETû
interest income to Rs217.98bn after it
managed to recover income from accounts
previously written off, in a sign that
the lender’s asset quality has started to
stabilise.
“The key takeaway of the result would
be the decline in NPLs as the resolution
CYCLEûSEEMSûTOûBEûlNALLYûGETTINGûREmECTEDûINû
HEADLINEûRATIOS vûSAIDû-"û-AHESH ûASSOCIATEû
director at Kotak Securities, in a research
note.
“As several large NPLs are seeing a
change of ownership, it would not be
surprising if there is an acceleration in this
decline of NPLs from here.”
THOMAS BLOTT“The reliance of the
Australian banking system
on international markets for
funding makes it important
that investors understand
and have confidence in their
capital strength during ordinary
times and in periods of market
disruption.”