By Caroline Henshaw
SYDNEY--Australia's banks could find it harder to compete with
international peers and will have to pay more to raise funds
because of the local regulator's more stringent approach to new
international banking rules, according to two of the country's
major lenders.
Commonwealth Bank of Australia (CBA.AU), Australia's largest
bank by market capitalization, said in a submission to a Senate
enquiry that the Australian Prudential Regulation Authority's
conservative approach to calculating the banks' capital holdings
would make Australian banks seem less creditworthy.
"Australian banks will be placed at a competitive disadvantage
when accessing global debt and capital markets as Australian banks'
capital ratios will appear lower," CBA said. "This may lead to a
higher cost and/or reduced access during stressed periods."
National Australia Bank Ltd. (NAB.AU), another one of
Australia's big four banks, calculated in its submission that the
base cost of funds for the banks will rise to 115 basis points in
the first quarter of fiscal 2014, up from 104 basis points in the
third quarter of 2012. The cost of cash plus assets will rise to
128 points from 120 points over the same period.
"Changing the funding model to make it more stable comes at a
cost that will be borne in part by borrowers," NAB said.
Australia's banks are some of the most creditworthy in the world
thanks to their strong balance sheets and the resilience of the
local economy. But the introduction of the Basel III accords, which
aim to strengthen the financial system by increasing banks' capital
requirements, are forcing them to compete more for deposits and
lengthen their funding profile--all at a cost.
APRA is also introducing particularly strict local rules in
excess of Basel requirements which strip out riskier assets from
the balance sheet and adds risk weighting to assets perceived to be
more vulnerable. This means the Australian banks' core equity ratio
seems lower than their peers--the headline 9% rate here is
equivalent to around 11.5% in the U.K.
In a paper published in April, APRA rejected the suggestion that
the banks would be at a disadvantage in global capital and funding
markets due to the lower headline figure.
But CBA argues that this will create the perception that
Australia's banks are less-well capitalized than their peers. It
points to a note by Royal Bank of Scotland stating that "all four
of the major commercial Australian banks fall below the 9% Core
Tier 1 threshold."
"If Australian banks report lower 'headline' capital ratios due
to APRA's conservative approach to the adoption of Basel III
reforms they may be disregarded," said CBA.
Australia and New Zealand Banking Group Ltd. (ANZ.AU) and
Westpac Banking Corp. (WBC.AU) round out the top four banks.
Write to Caroline Henshaw at caroline.henshaw@dowjones.com