Australia's 4 major banks on a capital raising spree

They have raised almost AUD 16 billion of CET1 capital since May 2015.

According to Moody's, Australia’s four major banks have undertaken a number of capital initiatives over the past few months. In September, ANZ and CBA finalised AUD 3.2 billion and AUD 5.1 billion capital raisings respectively. NAB had raised AUD 5.5 billion in May, while Westpac opted to raise AUD 2 billion via its dividend reinvestment plan. Collectively, the banks have now raised almost AUD 16 billion of CET1 capital since May 2015.

Here's more from Moody's:

The banks have announced a number of asset sales, which will further contribute to strengthening capital levels. ANZ estimates that the upcoming sale of its Esanda Dealer Finance unit will improve its CET1 capital position by 0.20%.

Westpac’s sale of BT Investment Management will have a smaller impact, estimated to be in the 0.04% range, whilst NAB’s exit from its US business is likely to yield 0.34% of capital. Other initiatives, such as NAB’s planned demerger of Clydesdale Bank in the UK are likely to be broadly capital-neutral.

Further increases in Australian bank capital requirements are likely, reflecting changes to the global capital adequacy framework for banks stemming from the BCBS, and local regulatory changes in response to the FSI’s recommendations.

The exact form the increased capital requirements will take remains unclear. A key issue yet to be resolved is the balance between higher CET1 capital requirements and higher loss-absorbing capacity coming from other forms of capital, including the potential for senior bail-inable bonds with loss-absorbing features (akin to BCBS’s total loss-absorbing capacity proposals). In addition, regulatory reform may take place via further changes to risk weights, enhancing capital intensity, but not necessarily increasing the headline capital ratios.

Subject to these considerations, we believe that the Australian banks’ CET1 capital ratios may ultimately rise from current levels around 9% towards the 10% mark. The major banks are well placed to meet these enhanced capital requirements, especially considering the likely lengthy phase-in period of any new capital rules.

We estimate that the major banks could generate between 40 to 90 basis points of addition CET1 capital through retained earnings and normal operation of their DRPs over a 12-month horizon. At the same time, the deteriorating operating environment in Australia is expected to translate into moderately higher credit costs.

This may over time result in increasing risk weights, putting downward pressure on capital ratios. On balance, whilst the need for further capital raising has abated for now, the capital accumulation phase is likely to continue for a considerable period of time yet.