ANZ says new rule may hurt capital ratios

SYDNEY Mon May 5, 2014 1:15am EDT

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SYDNEY May 5 (Reuters) - Australia and New Zealand Banking Group Ltd on Monday said its capital ratios will be impacted if benefits from certain debt issued by its wealth management arm are phased out under new regulations aimed at strengthening bank balance sheets.

The country's No.3 lender said it was advised by the Australian Prudential Regulation Authority that it was considering clarifying the composition of capital for banks.

"Should the change come into effect as currently proposed, it would reduce ANZ's level 2 capital ratios by about 20 basis points," it said, adding it expected to self-fund any additional capital requirements.

ANZ has two debt issues held by ANZ Wealth Australia Ltd of A$400 million ($370 million) each, maturing in June 2015 and March 2016 respectively.

Last week, the lender posted a 11 percent rise in half-year cash profit but margins dropped to their lowest level in six years in a sign that competition for low-risk mortgages could be crimping the profitability of Australia's Big Four banks.

Market leader Commonwealth Bank of Australia said the new rule will apply to its A$2.2 billion of debt funding within its wealth management arm with maturities through 2017.

"This has no immediate effect on the group's capital ratios and the impact on future periods should be minimal," said David Craig, chief financial officer at Commonwealth Bank.

Commonwealth Bank will give a quarterly update on its results next week.

The regulator had said in December that Australia's systemically important Big Four banks will be required to set aside an extra 1 percent of equity capital under new regulations to protect against the kind of turmoil seen during the global financial crisis.

Australia's Big Four banks are among the world's largest and most profitable, having avoided the worst of the subprime mortgage crisis, risky lending and an investment banking bubble in the past decade.

The Big Four includes ANZ, Commonwealth, Westpac Banking Group and National Australia Bank.

($1 = 1.0795 Australian dollars) (Reporting by Swati Pandey; Editing by Matt Driskill)

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