ANZ flags need for more cash on new capital rules

[SYDNEY] Australia and New Zealand Banking Group on Tuesday signalled it may have to raise extra capital while lowering investor expectations on dividends following a regulatory change to the treatment of residential mortgages.

The Australian Prudential Regulatory Authority (Apra) is seeking to strengthen the finances of the country's highly profitable major banks including ANZ, asking them to keep aside more funds against every dollar that they lend.

The four biggest banks together raised a record A$20 billion (S$20.5 billion) last year to boost their capital ratios. ANZ is also giving capital-intensive institutional lending a wide berth, slashing dividends and selling non-core assets.

"Over time, ANZ expects that these and other initiatives will allow the group to target a stronger balance sheet and capital structure," it said in a statement.

"However, alternatives such as providing a discount to the dividend reinvestment plan (DRP) and/or DRP underwriting could provide additional flexibility, if required."

Analysts expect Australia's "Big Four" banks to collectively raise up to A$31.2 billion in additional equity over the next two to three years to create a large enough buffer to shield them from a repeat of the 2008/09 financial crisis.

Apra increased mortgage risk weights in July for the country's five biggest banks - ANZ, Commonwealth Bank, Westpac Banking Corp, National Australia Bank and Macquarie - to make them safer amid sky-rocketing house prices in Sydney and Melbourne.

On Monday, ANZ said while the exact increase was yet to be confirmed, the A$3 billion it raised late last year should help it offset the impact of higher mortgage risk weights.

ANZ also expects its Common Equity Tier I ratio - a measure of balance sheet strength - to fall to 9 per cent as of June 30 from 9.80 per cent in March.

REUTERS