Basel III impact for Australian banks
Tuesday, 6 September 2011 — Ernst & Young have examined the likely impacts of the release of APRA’s Basel III package on Australian banks and found there are a number of key implications for the industry.
Of particular interest is the approach APRA have taken to the application of capital conservation and countercyclical buffers. Through a pragmatic application of the global rules, they have retained some flexibility – subject to a minimum 7% tier 1 floor – to ensure Australian banks are not disadvantaged by the changes. This will then become a point of continuing negotiations between the banks and APRA on a case by case basis.
Other key areas of focus for Australian banks will be:
- Business impact of the new leverage ratio (effective January 2018). While banks have been responding tactically to the Basel III rules for some time, the new environment could see an impact on strategic direction as banks determine where to pursue growth.
- Continuing return on equity pressure. Overall higher capital requirements and the business implications are unchanged. Decisions will need to be made with regard to pricing to ensure capital and liquidity consuming products are appropriately priced, and those products that generate liquidity are priced attractively.
- Timeline for system changes. By bringing forward the capital timetable and with the industry still waiting on liquidity release, APRA has condensed the timetable for the implementation of required process, technology and infrastructure systems changes.
Ernst & Young’s Oceania Financial Services Managing Partner, Andrew Price says:
“With banking now requiring more capital than before, organisations will need to assess how they will continue to create value in the new environment.
“This will continue to drive change in the relative pricing of banking products in Australia. In this environment, wealth management will continue to be an attractive growth option for Australian banks.
“It is also important to remember that the Basel III rules are just some of the many changes amongst the current wave of regulatory reform for the industry.
“Banks seeking to gain a competitive advantage as a result of these reforms will need to link the impacts of the changes (both current and future) to their business processes and technology systems, ensuring they understand the impacts for their customers, people and infrastructure.”
About Ernst & Young
Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 141,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.
Ernst & Young refers to the global organisation of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information on our organisation, please visit www.ey.com.
This news release has been issued by Ernst & Young Australia, a member firm of Ernst & Young Global Limited.
Liability limited by a scheme approved under Professional Standards Legislation.
Ernst & Young Australia
Tel: +61 2 9276 9305 or 0418 835 849