APRA's Basel III plan wins support

APRA's plan to integrate Basel III's new capital rules into its existing apparatus appears to have won the broad support of the Australian banking industry.

In a discussion paper released yesterday, the Australian Prudential Regulation Authority made Australia one of the first countries, after Switzerland and China, to state how it will meet Basel III. Although APRA promises consultations with the industry before final rules are issued, most of its detailed plans are unlikely to change.

The most contentious part of the regulator's plan is that it will accelerate the transition timetable proposed by the Basel Committee for increases in capital ratios by as much as two years.

Basel III, an international framework for banking regulation hammered out in the wake of the global financial crisis, aims to minimise the size and frequency of future financial crises. Basel III requires banks to hold a larger "buffer" of capital than previously to deal with losses. It also requires larger holdings of liquid assets.

In the paper, APRA confirmed it would adopt almost all of the Basel III capital framework. It also confirmed that it wants parts of the framework implemented in Australia well ahead of the global timetable.

So, while Basel III will require a minimum 4.5 per cent Tier 1 capital at the start of 2013, APRA will require 6.0 per cent. APRA also plans to implement a new capital buffer in January 2016, three years before Basel III requires it.

APRA declined to take the opportunity, offered under Basel III, to impose easier-to-meet definitions of capital in certain areas. But it did relax its definition of when dividend payments must be subtracted from capital, thus bringing it into line with Basel III.

Although other banks are still examining the rules and may have individual concerns with particular details, none appear likely to mount a major campaign against it. A Westpac spokesman told AAP that the proposals "met the bank's expectations and aligned closely with the Basel III standards".

AAP also quoted Credit Suisse analyst James Ellis, who called the rules "if anything... less onerous than expected", and Bell Potter Securities' analyst, TS Lim, who said they would "give more comfort to investors".

Ernst & Young's financial services managing partner for Oceania, Andrew Price, said APRA's approach was "pragmatic". APRA had not merely cherry-picked tougher standards from Basel III, he noted, but had relaxed its standards in some areas to bring them into line with Basel III.

KPMG partner Paul Lichtenstein said there was merit in APRA's decision to implement parts of Basel III before the deadline.

The Australian Bankers Association, meanwhile, issued a statement that mildly "questioned" why APRA was transitioning early to Basel III.