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Banking Sector Update: 20 July 2017

Azib Khan

Yesterday APRA released the much-anticipated information paper regarding the concept of 'unquestionably strong'. 

Key points

  • The 4 major banks will need to have CET1 capital ratios of at least 10.5% to meet the 'unquestionably strong' benchmark. APRA will set prudential standards to achieve this outcome by effectively increasing requirements for all IRB banks by the equivalent of ~150bps. 
  • For other ADIs, including BOQ, the effective increase in capital requirements to meet the 'unquestionably strong' benchmark will be ~50bps. 
  • All ADIs are expected to meet the new benchmarks by 1 January 2020

In the video below I discuss how the definitiveness of APRA's new benchmark warrants a lower regulatory risk premium for the banking sector. Despite yesterday's rally, we see further upside to share prices:

More information

Morgans clients can view further analysis on the effect of the APRA decision on the major banks by accessing the full report here, which includes details on our preferred stock pick in the banking sector.

Disclaimer(s): Analyst owns shares.

The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.