The banking regulator APRA has introduced new mortgage rules, sending the share prices of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) down.
The regulator is directing the banks to be a little more cautious on riskier loans such as interest-only and investor loans. APRA is instructing banks to hold more capital to safeguard against these loans.
Most authorised deposit-taking institutions (ADI) are on their way to reaching the ‘unquestionably strong’ benchmark for capital ratios & targets and should not need to raise capital to meet these new measures.
APRA indicated that these new measures “aim to reinforce the safety and stability of the ADI sector by better aligning capital requirements with underlying risk, especially with regards to residential mortgage lending.”
APRA Chairman Wayne Byres said “In setting out these latest proposals, APRA has sought to balance its primary objectives of implementing the Basel III reforms and ‘unquestionably strong’ capital ratios with a range of important secondary objectives. These objectives include targeting the structural concentration in residential mortgages in the Australian banking system, and ensuring an appropriate competitive outcome between different approaches to measuring capital adequacy.”
According to reporting in the Australian Financial Review, this will mean that big banks will go back to Basel III rules but will apply a multiplier of 1.5x for low-risk loans and 2x for high-risk loans. With smaller banks, APRA is proposing lower-risk loans having a risk weight of 25% and higher risk loans attract a risk weight of 95%.
Banks are being asked by the Reserve Bank of New Zealand and APRA to steadily hold more capital, making them less profitable, however it does mean they could be safer in a downturn.
All of the big banks are down between 0.5% to 1%, showing that this is a negative but not a huge one for the banks in the market’s eyes.
Even so, I would much rather invest in one of these defensive ASX dividend shares over the banks with the current state of the housing market.
Leading 3 ASX Income Ideas For 2019
With interest rates likely to stay at rock bottom for months (or YEARS) to come, income-minded investors have nowhere to turn… except dividend shares. That’s why The Motley Fool’s top analysts have just prepared a brand-new report, laying out their top 3 dividend bets for 2019.
Hint: These are 3 shares you’ve probably never come across before.
They’re not the banks. Not Woolies or Wesfarmers or any of the “usual suspects.”
We think these 3 shares offer solid growth prospects over the next 12 months. The first two currently offer fat, fully franked yields. The last is a surprising REIT offering you the benefits of being a landlord with none of the hassle! You’ll discover all three names and codes in “The Motley Fool’s Top 3 Dividend Shares for 2019.”
Even better, your copy is free when you click the link below. Fair warning: This report is brand new and may not be available forever. Click the link below to be among the first investors to get access to this timely, important new research!
The names of these top 3 dividend bets are all included. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies move – we may be forced to remove this report.
Click here to claim your free copy right now!
Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019