Australia's prudential regulator on Thursday loosened its capital requirements to enable banks to lend more freely, backing the government's efforts to stave off a recession amid the coronavirus outbreak. The Australian Prudential Regulation Authority (APRA) said it would allow banks to breach their heightened capital buffer requirements in order to boost the flow of credit to the economy.
"APRA is advising all banks today that, given the prevailing circumstances, it envisages they may need to utilise some of their current large buffers to facilitate ongoing lending to the economy," the agency said in a statement.
A relaxation in the amount of capital they can hold is likely to free up hundreds of billions of dollars, according to bank analysts. Australia's banks, led by Commonwealth Bank of Australia, Westpac Banking Corp, Australia and New Zealand Banking Group and National Australia Bank, have built up a capital buffer of A$235 billion ($133.43 billion) as of the end of 2019, well above minimum requirements, APRA said.
The Big Four banks are required to have a capital equity tier 1 ratio of 10.5%. However the actual capital ratio in the banking system at the end of 2019 had reached 11.3%, the regulator said.
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