The new risk weight for mortgages at ANZ will be around 28.5% according to information released today. This is higher than some expected, but still well below the 35-40% weighting of the regional banks, so continues to highlight the relative benefits the large players have. This is before the next round of discussion on risk weights we expect from APRA later in the year.
The rise in risk weights has been one of the main drivers of mortgage repricing, which is impacting all lenders in the sector to varying degrees.
In an ASX announcement on 8 August 2016, ANZ said that it expected the average risk weight for its Australian residential mortgage lending book would increase following changes by the Australian Prudential Regulation Authority (APRA) to capital requirements for Australian mortgages and a review by APRA of ANZ’s mortgage capital model.
APRA has now completed its review of ANZ’s mortgage capital model and approved the new model for Australian residential mortgages to be adopted from June 2017.
Adoption of the new model is expected to decrease ANZ’s Level 2 Common Equity Tier-1 ratio by 26 basis points based on ANZ’s balance sheet at 31 March 2017, representing an average risk weight applied to the Australian mortgage portfolio of a little over 28.5%.
This impact is consistent with ANZ’s 2017 capital management plan and no additional capital management actions are required as a result.
As indicated at ANZ’s First Half 2017 financial results, the Group expects APRA to make further changes to sector capital requirements through a clarification to the “unquestionably strong” capital framework.
