S&P has published a report that outlines the benefits to Australian regional banks from the likely introduction of risk weighted average floors for mortgages and suggests that regional banks will see a more competitive operating environment as capital requirements are smoothed between standardised and IRB capital banks. The report also indicates that the banks’ progress toward IRB accreditation will provide enhanced risk management capabilities regardless of the move to more standardised RWA floors. The big banks will have to raise $18bn of new capital and this could curb the rate of growth in home lending and reduce pressure on house prices, S&P says. If APRA required the big banks to use higher average “risk weightings” for home lending, this “would result in a higher level of capital held against mortgage loans across the entire industry, which would be positive for our overall credit view of the Australian banking system, particularly in light of growing concerns about property price inflation”.
S&P: Benefit from Financial Services
03 June 2015
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