Global study put Australian banks under par
(26 November 2009 – Global) Despite Australian banks raising more than A$20 billion in the last year to strengthen capital; ratings agency Standard and Poor’s has warned that nearly all of the world’s big banks, including Australia’s, have insufficient funds to cover their lending exposures.
Although Australian banks claim to have some of the strongest capital, known as tier one, levels in the world; the agency study seems to disagree.
The minimum level for the credit agency’s new risk-adjusted capital ratio is eight percent.
In the last year the big four endeavoured to raise capital to strengthen balance sheets and achieved an increase in the average tier one ratio from 7.8 percent to 8.9 percent.
Despite this, none of the Australian banks featured in the group with minimum safe levels out of the 45 banks were reviewed overall.
Out of the big four included in the review, ANZ scored the highest rating with 7.1 percent. National Australia Bank was at 6.9 percent and Commonwealth Bank at 6.3 percent.
Critics warn that these measures of tier one ratio can be misleading as it fails to show the difference between higher-risk and lower-risk types of lending.
Tier one ratio is not measured on an international level and Australian banks have argued that under the British requirements, the bank’s levels would rise by around 2 percent.
The reasoning behind the unsatisfactory results in Australia’s banks is because hybrid securities make up around a quarter of their total capital.
Standard and Poor’s gives a lower rating to hybrid capital because it behaves more like debt than equity.
The results to date appear to confirm S&P view that capital is a rating weakness for a majority of banks in the sample, S&P said.
The review of capital strength comes as Australian banks face a crackdown on rules related to liquidity.
The minimum level for the credit agency’s new risk-adjusted capital ratio is eight percent.
In the last year the big four endeavoured to raise capital to strengthen balance sheets and achieved an increase in the average tier one ratio from 7.8 percent to 8.9 percent.
Despite this, none of the Australian banks featured in the group with minimum safe levels out of the 45 banks were reviewed overall.
Out of the big four included in the review, ANZ scored the highest rating with 7.1 percent. National Australia Bank was at 6.9 percent and Commonwealth Bank at 6.3 percent.
Critics warn that these measures of tier one ratio can be misleading as it fails to show the difference between higher-risk and lower-risk types of lending.
Tier one ratio is not measured on an international level and Australian banks have argued that under the British requirements, the bank’s levels would rise by around 2 percent.
The reasoning behind the unsatisfactory results in Australia’s banks is because hybrid securities make up around a quarter of their total capital.
Standard and Poor’s gives a lower rating to hybrid capital because it behaves more like debt than equity.
The results to date appear to confirm S&P view that capital is a rating weakness for a majority of banks in the sample, S&P said.
The review of capital strength comes as Australian banks face a crackdown on rules related to liquidity.
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