APRA intends to simplify use of hybrid bonds
Move to simplify bank capital requirements, remove risk
Transition to begin from January 2027

Sept 10 Reuters Australia39;s prudential regulator is proposing to bar banks from issuing certain hybrid securities to help meet their capital requirements starting in 2027 as retail investors that typically buy them do not understand the risks of these instruments.

The Australian Prudential Regulation Authority APRA said on Tuesday it wants banks to replace Additional Tier 1 instruments with more reliable and less expensive forms of capital to improve the effectiveness of bank capital in times of crisis.

The push comes after Switzerland39;s financial regulator angered bondholders last year when it wrote down 17.24 billion of Credit Suisse39;s Additional Tier 1 capital to zero as part of the bank39;s rescue merger with UBS.

Australian banks have around A40 billion 26.66 billionoutstanding of Additional Tier 1 capital as of June 2023 according to a discussion paper on APRA39;s website.

This would represent a significant change to a bank39;s capital structure, an Australian Banking Association spokesperson said.

Banks will now carefully consider the implications of APRA39;s proposal, balancing any changes to costs of capital, as well as impacts on capital markets and investors.

The transition period is due to begin on Jan. 1, 2027 and all hybrids would have to be replaced by 2032.

We think the largest impact will be on the…