Bank share buybacks limited by capital rules

The Australian Prudential Regulation Authority will impose new limits on the amount of hybrid or innovative capital that banks can count as “core” capital, but will effectively allow banks to continue to rely on existing hybrid structures that would otherwise fall foul of the new rules. APRA said it would limit so-called innovative capital to 15 per cent of core bank capital. Most large banks exceed the 15 per cent cap on innovative capital under APRA’s new rules. ANZ’s ratio of hybrid capital to tier one capital is between 20 per cent and 21 per cent. Westpac’s ratio is similar, while National Australia Bank is a little above, and Commonwealth Bank a little below the threshold. Macquarie Equities Research suggested that St George Bank would be most affected by the new rules, with a probable ratio of “innovative tier one” capital in 2008 of 21 per cent, well above the 15 per cent limit.

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