The Basel Committee has published the latest results of its monitoring exercise - based on data as of 31 December 2016 - and, for the first time, the report provides not only global averages but also a regional breakdown for many key metrics.
Unfortunately, there is still no breakdown of metrics at a country level but, overall, banks now hold a lot more capital. The Swiss regulator said that at the end of December, all banks in the sample met Basel III minimum and target common equity tier one capital requirements as agreed up to the end of 2015. And, all G-SIBs met both fully phased-in liquidity minimum requirements.
Compared with the previous reporting period (June 2016), the average CET1 capital ratio under the fully phased-in Basel III framework has increased from 11.9 per cent to 12.3 per cent for Group 1 banks. These are banks that have Tier 1 capital of more than €3 billion and are internationally active - all other banks are considered Group 2 banks.
All Group 1 banks would meet the CET1 minimum capital requirement of 4.5 per cent and the CET1 target level of 7.0 per cent (ie. including the capital conservation buffer). This target also includes the G-SIB surcharge where applicable.
Applying the 2022 minimum requirements, 12 of the 25 G-SIBs reporting total loss-absorbing capacity (TLAC) data had a combined shortfall of €116.4 billion, compared with €318.2 billion at the end of June 2016.
'Positive report card'
Group 1 banks’ average Liquidity Coverage ratio improved by 5 percentage points to 131.4 per cent, while the average Net Stable Funding Ratio increased from 114.0 per cent to 115.8 per cent. For Group 2 banks, the LCR and NSFR are more stable.
“So, all-in-all, a very positive report card on how banks are tracking towards Basel III compliance,” said KPMG risk partner Michael Cunningham. But in his view, due to some accounting, timing and regulatory differences, direct comparisons on capital ratios needs to be qualified.
“At a macro level, in contrast to the Group 1 banks, major Australian banks’ average CET1 (as at the 2017 first half) was 12 per cent and seemingly off the pace, however, on a total regulatory capital basis we have 14.2 per cent.
“In terms of liquidity, major Australian banks’ average LCR of 129 per cent is tracking marginally ahead of G-SIBs but behind the Group 1 banks.
Interestingly, he noted, Australian banks are apparently more levered at an average of 5.2 versus Group 1 banks at 5.8.