Australia's powerful banking regulator says lenders will probably face "somewhat higher" capital requirements this year due to changes in global financial regulation, and it will also aim to enhance competition where possible.
After tougher capital rules last year resulted in the big four banks raising more than $18 billion combined in new equity from shareholders, Australian Prudential Regulation Authority chairman Wayne Byres said on Friday that capital requirements were probably climbing higher still in 2016.
Echoing previous remarks, he said the industry would be able to absorb the changes in an "orderly fashion" over several years - suggesting any changes will be more gradual than the new policies that triggered last year's capital raisings.
Mr Byres also said APRA's banking policy agenda would be dominated by moves to make the industry both more competitive and more resilient. These were both recommendations of the financial system inquiry, which called for Australia's banks to be made "unquestionably strong".
"Over the year ahead, we'll be watching how the international capital framework is finalised with a view to establishing an 'unquestionably strong' and robust set of domestic capital requirements for Australian deposit-takers," Mr Byres said at the Australian Economic Forum in Sydney, a closed-door meeting of top investors, executives, and officials.
"The result of the changes in the pipeline will, in all likelihood, lift capital requirements somewhat higher, but still well within the capacity of the banking sector to absorb in an orderly fashion over the next few years," he said.
APRA does not have an explicit competition objective, but he said it would "mindful" of changes that would enhance the competitive playing field where possible.
"So we'll be looking at policy choices that, where possible, add to the competitive dynamic of the industry when this doesn't undermine prudential outcomes," he said.
For instance, APRA last year required big banks to set aside more capital against mortgages but did not apply the change to other lenders, which should help to make the home loan market more competitive.
Mr Byres' comments on capital are closely watched by the market, as analysts have differing views on the size of the capital build that may be facing the Australian banks over the year ahead.
These are his first public comments of 2016, and there is a view among some in the market that regulators are softening their stance on how significantly global capital requirements may be lifted.
The Basel committee, a club of banking regulators, earlier this month said global banks would need to increase the amount of capital they hold, but the change was less than had been expected.