The Australian Prudential Regulator ( APRA ) has announced the the four major banks and Macquarie will be compelled as of 1st July 2016 to increase their risk weighting for home loan lending to 25 percent up from the current 16 percent.   This will bring them a little closer to the 35 percent that applies to other non-IRB accredited lenders which basically represent the rest of the market.

The move will be welcomed by the regional/second tier lenders who have argued for several years that the risk weighting has been biased in favour of the major banks.  This will to some extent level the playing field as the major banks will be required to fund their lending with between $10 and $12 billion dollars of extra capital.  Meanwhile there is still a possibility that APRA could lift the 25 percent figure further, depending on the outcome of the Basel Committee on financial regulations later this year

This will probably result in increased interest rates or more likely reduced discounts, which have recently been seen as high as 1.35% off the standard variable.   Where as ten years ago discounts were closer to 0.60% to 0.80%.

ABC reports Westpac CFO Peter King said that, while Westpac had started increasing its capital position, customers and shareholders would be forced to bear the costs.

“We are well placed for this change, having already taken a number of significant steps to boost our capital position,” he said. “While Westpac is well-placed to meet these changes, increased capital does come at a cost. The cost of holding higher capital will inevitably be borne by customers and shareholders.”?

 

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