Regional banks respond to APRA announcement about average risk weightings for advanced banks

Four of Australia's leading regional banks – Bendigo and Adelaide Bank, BOQ, ME and Suncorp Bank – have today welcomed the Australian Prudential Regulation Authority's (APRA) announcement that it intends to implement a key recommendation of the Financial System Inquiry.

APRA today confirmed authorised deposit-taking institutions accredited to use the internal ratings-based approach will have to increase their average risk weightings on Australian residential mortgage exposures from approximately 16 per cent to at least 25 per cent from 1 July 2016.

Standardised banks are already required to hold more capital (with average risk weights of 39 per cent) on their residential mortgage exposures. This remains unchanged.

The regional banks, which have advocated for a set of financial system rules and regulations that would strengthen confidence in Australia's financial system, believe this change is an integral step towards creating a more even playing field for all banks and will increase competitive neutrality in the market.

They are, however, mindful of the need to continue to monitor developments in this area given international regulators are still deliberating about global capital adequacy frameworks.