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Banks' tier one capital ratios dragged back to eight per cent

02 May 2016 3:35PM
Australia's major banks would work their way through even "a highly stressed scenario" of deteriorating corporate credits, Moody's Investors Service said in a report published on Friday."Our sensitivity analysis suggests that the potential decline in the banks' capital metrics as a result of changes to risk weights will be limited, even in a highly stressed scenario," Moody's said. The rating agency said the major banks' tier one ratios would remain above eight per cent, a level which is the combination of the regulatory minimum CET1 plus capital conservation and domestic systemically important bank buffers.Under a "harsh risk weight assumptions, the banks would only see a 70 basis points decline in their CET1 ratios, assuming ... an impaired and past due loan ratio of 2.5 per cent," Moody's said.This ratio "corresponds to the upper end of the range recoded by Australian banks in 2009 in the immediate aftermath of the global financial crisis."??Moody's also highlighted that "the coming shift in residential mortgage risk weight accounting will cause a decline of 90 basis points," in major banks' capital ratios "bringing the major banks' CET1 ratios down to 8.0 per cent from 9.6 per cent as at September 2015."

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