New regulation for banks

The newly formed Australian Prudential Regulation Authority (APRA) had announced several changes to bank’s capital requirements, bringing them into line with the requirements for building societies and credit unions, and aligning Australia with global practise.

The changes now mean that home loans in which the lender lends over 80% of the property value will now be treated as all other loans secured by residential property, rather than being seen as a greater risk. This should mean that these loans will become cheaper to fund.

The APRA has also changed the capital requirements for banks when lending to governments. The risk rating for these loans, previously at 10%, had been reduced to nil. This should free up about $120 million in capital for the banks.

Bank’s exposure to building societies and credit unions will stand at a 20% weighting, bringing it into line with inter-bank loans. The move has had a very positive response from the banking system, and we can expect to see the flow-on from these changes in the near future.