World Economy

Australian Banks Need $42b to Guard Against Risks

Australian Banks Need $42b to Guard Against RisksAustralian Banks Need $42b to Guard Against Risks

Major Australian banks will need as much as A$48 billion ($41.7 billion) to move to the top quartile of global banks, analysts estimate, after a government-backed review on Sunday called for stronger capital levels to ensure they can survive a global financial crisis.

While the review fell short of specifying the extent of the increase needed, it said capital levels at Australian banks needed to rise to 12.2 percent to be in the top quartile of international banks, from current levels of 10-11.6 percent, AFP reported.

Bell Potter, analyst TS Lim, said each bank would need A$10 billion to A$12 billion to make it to the top quartile. The Australian Prudential Regulatory Authority (APRA) will take a final call on the capital charge for banks in a consultative process until March 31.

“Overall, Murray’s recommendations around capital, while not entirely surprising, are a negative for the major banks,” said Omkar Joshi, an investment analyst who helps oversee about A$1 billion at Watermark Funds Management Pty. “I would expect bank shares to underperform the market on Monday.”

  Credit Rating

In a note last month, credit rating agency Fitch Ratings estimated the Big Four could face a capital shortfall of up to A$53 billion ($44.1 billion) in the most aggressive scenario. While the numbers are large, Fitch said the banks were “well positioned” to meet the additional buffers through internal capital generation.

Australia’s “Big Four” lenders – Commonwealth Bank of Australia, Westpac Banking Corp, Australia & New Zealand Banking Group and National Australia Bank – hold combined market share of more than 80 percent, raising fears they are “too big to fail.”

They survived the global financial crisis that began in 2008 relatively unscathed and have been generating record profits in recent years, largely on the back of massive mortgage books.

Murray said in his report the major banks would be rendered insolvent in the absence of capital raising if they were hit by a shock similar to that which overseas banks suffered during the global crisis.

Murray also proposed lifting so-called risk weights on mortgages for major banks, which could hit profitability or lead to higher home loan rates.

  Jobs Lost

After two straight months of large gains, Canada’s economy lost more than 10,000 jobs last month and the unemployment rate inched up to 6.6 percent.

Statistics Canada reported Friday that there were 10,700 fewer jobs in November than there were a month earlier. The economy actually added more than 5,000 full-time jobs, but that was offset by a decline of 16,000 part-time positions.

Across the country, employment declined in Ontario, which lost 34,000 jobs, and Saskatchewan, while it increased in Quebec as well as Newfoundland and Labrador.

Quebec posted the biggest monthly gain, adding more than 19,000 new jobs — the first time in the more than six months that the province has shown any jobs growth.