24 October 2016
Commonwealth Bank of Australia announced a A$5 billion capital plan on Aug. 12. Photo: Bloomberg
Commonwealth Bank of Australia announced a A$5 billion capital plan on Aug. 12. Photo: Bloomberg

Australia’s big four banks raise US$11.8 bln after capital call

Australia’s big four banks have responded to a capital call from the Australian Prudential Regulatory Authority (APRA) by raising a total of A$16 billion (US$11.8 billion) since May.

The new funds could boost their common equity Tier 1 ratios by 60 to 130 basis points in pro-forma terms, based on company disclosures.

Most recently, Commonwealth Bank of Australia announced a A$5 billion capital plan on Aug. 12, a move that followed Australia and New Zealand Banking Group’s Aug. 6 launch of plans to raise A$3 billion.

Common equity Tier 1 ratios may range from 9.3 percent to 10.4 percent for the lenders after the latest round of fundraising. CBA’s ratio may reach 10.4 percent after it raised A$5 billion in August.

National Australia Bank may follow with 9.9 percent, helped by A$5.5 billion of new capital from May.

Westpac Banking Corp.’s ratio may rise to 9.4 percent after a A$2 billion dividend reinvestment plan. ANZ, having raised A$3.5 billion since May, may see its ratio grow to 9.3 percent.

The regulator recommended that the banks strengthen their capital position for two reasons.

Rising mortgage risk is one, as home prices in Sydney and Melbourne surged to a multiyear high after years of low cash rates.

The APRA set a new risk weighting of 25 percent on domestic mortgages for these banks, effective from mid-2016 onward. These lenders currently assign a weighting of about 17 percent to home loans.

The second reason is that the regulator wants the big four to boost their common equity Tier 1 ratios to the level of the world’s top quartile banks. Their ratios stood close to the median of 98 global banks studied by the Basel Committee before the recent fundraising.

Over the past month, CBA led its peers with a share price fall of 11 percent, followed by 8.3 percent at ANZ.

The massive fundraising plans announced this month may have raised investor concerns about earnings dilution.

Westpac and NAB shares fell by about 5 percent.

The views expressed in this article are those of Francis Chan, a senior banking analyst at Bloomberg Intelligence.

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