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APRA tells neobanks “optimism is not a capital management plan”

APRA tells neobanks “optimism is not a capital management plan”

(9 October 2019 – Australia) The prudential regulator has told the new batch of start-up banks that it wants to back them if they are increasing competition but will hold them to the same tough standards as incumbents.

Melisande Waterford, GM of licensing at the Australian Prudential Regulatory Authority, said it wants “to facilitate the launch of viable entities”, which would require scale and big investments from venture capitalists.

Describing neobanks’ capitalisation as the “elephant in the room” amid hype about their potential, Ms Waterford told the Future Banking Forum in Sydney “the only way for a challenger bank to be truly successful is to have sufficient capital to achieve scale.” “Optimism is not a capital management plan.”

APRA has authorised four new banks this year – Volt, Judo, 86400 and Xinja –while another new player, Up, is using the license, and balance sheet, of Bendigo and Adelaide Bank.

Amid growing political heat over banking competition, Ms Waterford said APRA is "more actively open to innovative approaches, particularly where they may bring benefits into the banking system".

However, "challenger banks can only make a difference to the competitive dynamic of the Australian market if they survive and thrive". She said many new applicants had very similar models to the banks they wanted to compete against.

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