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ANZ increases its residential mortgage risk weights

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ANZ has announced that it is increasing the average credit risk weighting of its Australian residential mortgage lending book sometime this quarter after the Australian Prudential Regulation Authority reaffirmed its objective to raise residential mortgage risk weights from 16 per cent to at least 25 per cent.

Though the exact increase has not yet been confirmed by ANZ, it is expected to be within the 25 per cent to 30 per cent range recommended by David Murray’s Financial Services Inquiry.

According to Moody’s, the risks to Australian banks are increasingly skewed to the downside with bank portfolios at unusually high levels of concentration to residential mortgages. The ANZ posted a weaker than expected full-year cash profit of $7.2 billion--a modest rise of just one per cent.

But earlier this month, APRA said that the major banks have now substantially satisfied the benchmark for capital strength set by the Financial Services Inquiry. This benchmark has been satisfied because of the lift in “the major banks’ weighted average comparison CET1 ratio” from 11.7 per cent in June 2014 to 13.5 per cent by December 2015.

“This increase was the result of a range of factors, but the largest single driver was the substantial capital raisings by the major banks in the latter part of 2015,” APRA has said.

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