Westpac brings back the discounted DRP

Westpac has launched a major capital management initiative aimed at boosting its capital ratio - but analysts at yesterday's half-year results briefing questioned whether the bank was doing enough to prepare for the demands for extra capital expected from the regulator later this year.

Westpac will offer shareholders a discounted dividend reinvestment plan for the first time since 2008 in a bid to raise A$2 billion of capital.

Shares issued under the DRP, which will be partially underwritten, will be at a 1.5 per cent discount to the market price.

The bank's common equity tier one capital ratio fell from nine per cent last September to 8.8 per cent at the end of March. It estimates the ratio will rise to 9.3 per cent after the DRP.

A ratio of 9.3 per cent is at the top of the bank's preferred CET1 range of 8.75 per cent to 9.25 per cent.

However, by one analyst's estimate Westpac needs to increase its capital base by about $5 billion to deal with changes to mortgage risk weights proposed by the Financial System Inquiry.

Westpac chief financial officer Peter King said there was too much uncertainty about how the Australian Prudential Regulation Authority would implement the change to mortgage risk weights to act on that issue now.