March 19, 2020 / 8:26 AM / 19 days ago

Australia regulator lets banks tap capital buffers to step up lending

MELBOURNE, March 19 (Reuters) - Australia’s prudential regulator on Thursday loosened its capital requirements to enable banks to lend more freely, backing the government’s efforts to stave off a recession amid the coronavirus outbreak.

The Australian Prudential Regulation Authority (APRA) said it would allow banks to breach their heightened capital buffer requirements in order to boost the flow of credit to the economy.

“APRA is advising all banks today that, given the prevailing circumstances, it envisages they may need to utilise some of their current large buffers to facilitate ongoing lending to the economy,” the agency said in a statement.

A relaxation in the amount of capital they can hold is likely to free up hundreds of billions of dollars, according to bank analysts.

Australia’s banks, led by Commonwealth Bank of Australia , Westpac Banking Corp, Australia and New Zealand Banking Group and National Australia Bank , have built up a capital buffer of A$235 billion ($133.43 billion) as of the end of 2019, well above minimum requirements, APRA said.

The Big Four banks are required to have a capital equity tier 1 ratio of 10.5%. However the actual capital ratio in the banking system at the end of 2019 had reached 11.3%, the regulator said.

“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,” APRA Chairman Wayne Byres said in a statement.

The regulator said that as long as banks show that they can continue to meet their minimum capital requirements, “APRA would not be concerned if they were not meeting the additional benchmarks announced in 2017 during the period of disruption caused by COVID-19.”

Since late 2016, Australian banks have been building up big capital buffers to help them withstand a repeat of the global financial crisis as regulators tried to make them “unquestionably strong”.

On Thursday, the Reserve Bank of Australia (RBA) reduced its cash rate to an all-time low of 0.25%, joining aggressive monetary easing by global central banks to mitigate the economic impact from the coronavirus outbreak that has raised fears of a global recession.

$1 = 1.7612 Australian dollars Reporting by Sonali Paul; Additional reporting by Swati Pandey in Sydney; Editing by Jacqueline Wong

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