Banks move to increase loss-absorbing capacity in line with APRA goals
National Australia Bank and ANZ will boost their capital reserves to meet additional regulatory capital requirements from 2026, the banks have announced.
The Australian Prudential Regulation Authority announced last week that it had finalised requirements for the four major banks to increase their loss-absorbing capacity (LAC), according to a report by The Australian. The final LAC setting will raise minimum total capital requirements by 4.5 percentage points of risk-weighted assets (RWA), and must be met starting Jan. 1, 2026. RWA sets the minimum capital a bank must hold to mitigate the risk of insolvency.
ANZ said the amount of the additional capital requirement would be based on its RWA as of January 2026, including the final impact of revisions to APRA’s capital framework. ANZ’s RWA was at $416 billion as of Sept. 30, The Australian reported.
NAB said that the change would represent an incremental increase of $6.3 billion of total capital, based on its RWA of $417 billion as of Sept. 30.
“NAB expects to meet this requirement primarily through the issuance of tier 2 capital, with a corresponding decrease in senior debt issuance,” the bank said. “NAB has been increasing total capital in line with APRA’s requirements from July 2019 and is well placed to meet the additional requirements by January 1, 2026.”
Neither Commonwealth Bank nor Westpac have yet made statements on the new requirements.
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APRA has started a five-month consultation with banks, insurers and superannuation trustees on two proposals to strengthen their financial preparedness, The Australian reported. The regulator’s consolidating prudential standard 190 financial contingency planning (CPS 190) proposal aims to ensure that all APRA-regulated entities have strategies in place to respond to severe financial stress in such a way to restore their financial resilience or exit the industry safely while protecting their customers.
Smaller institutions will be subject to less stringent requirements, The Australian reported.
APRA’s CPS 900 Resolution Planning would require large or complex APRA-regulated institutions to take preemptive actions so that, in the event they fail, APRA can resolve them with minimal harm to the community and the financial system.
APRA deputy chair John Lonsdale said the disorderly failure of an APRA-regulated institution could significantly harm the economy.
“Although Australia has one of the strongest and most stable financial systems in the world, and failures are extremely rare, business in any competitive market can face financial difficulties,” he told The Australian. “Should that happen, we want to be sure each entity has the capability to recover, or manage an orderly exit with the smallest possible impact on the community and the financial system.”
