APRA has given banks approval to use their capital buffers to fund lending, to help support the economy. The banking regulator said this would apply especially for banks using the Reserve Bank's new term funding facility.
Unravelling several years of progress informed by the last crisis and the Murray inquiry, APRA said that over the past decade banks have built up substantial capital buffers, "typically maintaining capital levels well above minimum regulatory requirements".
In 2017, it set benchmark capital targets to enable them to be regarded as unquestionably strong. For the four major banks this benchmark requires them to have a common equity tier 1 ratio of at least 10.5 per cent of risk weighted assets (less for smaller banks).
At the end of last year the CET1 ratio of the banking system was 11.3 per cent.
APRA said: "Provided banks are able to demonstrate they can continue to meet their various minimum capital requirements, APRA would not be concerned if they were not meeting the additional benchmarks announced in 2016 during the period of disruption caused by COVID-19."
In a note issued ahead of the change, Macquarie Securities said: "The key potential positive scenario for banks is if the regulator provides capital relief while balance sheets are exposed to the current volatility.
"Under the new accounting methodology, we expect banks to recognise losses earlier and capital ratios are likely to be impacted by RWA inflation as credit quality deteriorates. This will have an impact on banks' ability to meet unquestionably strong capital requirements and may require significant dividend cuts and capital raising.
"If the regulator provides near-term capital relief, it may reduce the need to raise capital in the near term."