Capital win for customer owned banking

15 April 2014

The Customer Owned Banking Association said changes announced today by banking regulator APRA are a welcome step toward better accommodation of the customer owned banking model.

APRA has revised Prudential Standard APS 111 Capital Adequacy: Measurement of Capital to give credit unions, building societies and mutual banks more flexibility to issue regulatory capital instruments while retaining their structure.

APRA Release, APRA improves capital-raising options for mutual ADIs, 15 April

“Recognition of the customer owned model alongside the listed bank model is important for competition and customer choice,” COBA CEO Louise Petschler said.

“Australians need a diverse banking market where different business models can thrive,” Petschler said.

“When APRA implemented the Basel III capital changes 16 months ago, customer owned banking institutions were confronted with a much reduced capacity within the new rules to issue regulatory capital instruments. This was because the rules were designed for large, listed banks and not for customer owned banking institutions.

“APRA has worked with COBA to resolve this problem and today’s announcement represents significant progress. COBA members are strongly committed to retaining their highly successful customer focused model but they also need additional capacity to raise capital when needed to grow and take strategic opportunities.

“Our sector is very strongly capitalised and will always rely on retained earnings as its primary source of regulatory capital. This change provides additional flexibility for capital management.

“While the change is an excellent first step, COBA will continue to work with APRA and other regulators on further accommodation of the customer owned model.

“We want competitive neutrality and a fair go for our model.

“Our submission to the Financial System Inquiry makes the case that diversity in banking is a strength for the financial system and contributes to stability,” Ms Petschler said.