Macquarie flags $2.2bn surplus capital hit, CBA to detail impact at FY results, as analysts crunch numbers on APRA’s capital reforms

Macquarie’s surplus capital could take a $2.2bn hit from APRA’s new capital framework requirements, while analysts detail the potential impact on the nation’s lenders.

Banks will have to hold more capital against riskier mortgages, as part of APRA’s new capital framework requirements. Picture: NCA NewsWire / David Swift

Macquarie Group’s surplus capital could take a $2.2bn hit from the Australian Prudential Regulation Authority’s new capital framework requirements, with the bank saying the final impact on its capital position will depend on the outcomes of APRA’s consultation process and its own business and geographic mix.

The update comes as analysts crunch the numbers on the biggest overhaul to regulatory capital requirements in almost five years, after the regulator on Monday told lenders they will have to hold more capital against riskier mortgages and change their reporting of key buffers from 2023.

“Based on the information available, the pro forma impact on Macquarie Group’s capital surplus above regulatory minimums as at September 30, 2021, is estimated to be around $2.2bn, largely on account of the increases to regulatory capital buffers,” the bank said on Tuesday.

“Macquarie Group’s capital surplus has included a provision for these regulatory changes for some time and it remains Macquarie’s expectation that it will have sufficient capital to accommodate these requirements.”

At September 30, Macquarie Bank’s APRA Basel III Common Equity Tier 1 capital ratio was 11.7 per cent, while Macquarie Group’s capital surplus above regulatory minimums was $8.4bn.

APRA’s final capital framework was well flagged and aligns Australia with international Basel III requirements.

“We welcome the finalisation of these important capital reforms which will provide clarity to the investment community,” Macquarie CFO Alex Harvey said.

Elsewhere, CBA said it would wait until its results next year before providing an update on the impact of the reforms and on its long-term capital management approach. This will follow APRA’s approval of the bank’s new internal capital models.

Morgan Stanley banking analysts said there were no major surprises in the framework but that some of the requirements were different to expectations, in particular the minimum CET1 ratio for the major banks, which will be 10.25 per cent and not 10.5 per cent as previously proposed.

“Offsetting this, the majors‘ risk weighted average will fall by around 5 per cent rather than 10 per cent,” the analysts told clients.

“This means that the average increase in the major banks’ pro forma CET1 ratios will be around 0.6 per cent, which is consistent with APRA’s statement that they would be ‘slightly higher’.”

As part of the new framework, APRA said all banks should “set prudent capital targets with an adequate management buffer”, and that the major banks would likely operate with CET1 ratios “above 11 per cent” in 2023.

But the new framework would not require banks to raise additional capital.

Ord Minnett analysts expect the rule changes to have an immaterial impact on ANZ, Commonwealth Bank and NAB, with a relatively modest negative impact on Westpac.

The broker’s preferences remain NAB, Macquarie and Bank of Queensland, with CBA the least preferred.