APRA Adjusts Capital Expectations for Banks Due to COVID 19

APRA, in 2017, had set benchmark capital targets for banks to enable them to be regarded internationally as unquestionably strong (which was a recommendation of the 2014 Financial System Inquiry). These benchmarks are well above the current minimum regulatory requirements. For the four major banks, for example, this benchmark equated to having a common equity tier 1 (CET1) ratio of at least 10.5% of the risk-weighted assets. A lower benchmark applies for smaller banks. In comparison, the actual CET1 ratio of the banking system by the end of 2019 had reached 11.3%. Over the past decade, the Australian banking system has built up substantial capital buffers. CET1, which is the highest-quality form of capital, reached $235 billion at the end of 2019. As a result, banks are typically maintaining capital levels well above the minimum regulatory requirements.

Related Link: Press Release

Keywords: Asia Pacific, Australia, Banking, COVID 19, CET 1, Basel III, Regulatory Capital, APRA