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