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APRA announces temporary changes to bank capital ratio expectations

APRA has announced temporary changes to it's expectations regarding bank capital ratios. APRA has advised banks that they can continue to facilitate lending even if it means falling below capital targets for risk-weighted assets.

The Australian Prudential Regulation Authority (APRA) has announced temporary changes to its expectations regarding bank capital ratios, allowing banks to continue supporting the Australian economy by providing credit increases and new loans.

The Australian banking system currently operates well above the minimum regulations for capital ratios enabling them to be classified as unquestionably in the international banking community. This is in large part due to the benchmarks set by APRA to maintain a level Common Equity Tier 1 (CET1) of above 10.5% of risk weighted assets.

APRA has now announced that during the current crisis they will temporarily suspend this expectation, allowing banks to utilise some of the buffer in capital ratio to support the Australian economy through lending. Despite this relaxation of expectations, APRA expects Australian banks to be able to maintain a level of capital ratio well above the minimum regulatory requirements.

APRA Chair Wayne Byres said: “APRA has been pursuing a program to build up the financial strength of the system for many years, when banks had the capacity to do so. As a result, the Australian banking system is well-capitalised by both historical and international standards.

“APRA’s objective in building up this capital strength has been to ensure it is available to be drawn upon if needed in times such as this. Today’s announcement reflects the underlying strength of the system: even if the banking system utilises some of its current large buffers, it will still be operating comfortably above minimum regulatory requirements,” Mr Byres said.

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