NAB confident on capital ratios
(17 July 2015 – Australia) National Australia Bank (NAB) chief executive Andrew Thorburn made his first public address on 15 July, taking the opportunity to say the bank had “done most of the heavy lifting” to prepare for the incoming higher funding requirements.
The Australian Prudential Regulation Authority (APRA) announced earlier in the month that the big four banks in Australia would have to raise 2 percentage points of capital.
Thorburn said NAB had already raised A$5.5 billion in equity before the banking regulator said the industry needs to boost capital ratios, so far there is no deadline or clarity on how APRA will define capital strength.
NAB's decision to raise capital at its May results "was a prudent, appropriate move" given bank capital is moving higher, Thorburn told a Trans-Tasman Business Circle lunch in Sydney.
"We still believe we are well paced, and we still believe we absolutely did the right thing in May to get ahead of that.”
Thorburn said there is some confusion about whether APRA's focus will be on total capital (which includes equity, hybrids and tier 2 bonds) or CET1, but "on both counts, we stand in good stead because since June 2014 – which was the timeframe APRA was referring to – we have lifted our CET1 by 150 basis points and our total capital by around 200 [basis points].
He also suggested that caution about "internal ratings-based" models is warranted.
Australia's long run of unbroken economic growth can limit the ability of banks' internal models to predict the effects of a sharp downturn.
"There is no doubt that at some point in the future, there are going to be events which are going to be as challenging for banks [as the global financial crisis], and whilst we have invested a lot of money in risk models that we believe in and are predictive, we have had 24 years of unbroken growth in Australia," Thorburn warned.
"We see rising capital levels are not just inevitable around the world, but are necessary."
On technology Thorburn said P2P lenders "should be something that we are concerned about" but reiterated other bank chiefs' view that the sustainability of the nascent sector will not be known until a downturn.
When it comes to bitcoin, Thorburn said it is "an area we continue to scan and monitor and think about, but I do think we have the capability in our own company to do this stuff".
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