MAJOR CHANGES TO AUSTRALIAN PRUDENTIAL REGULATION

C O N F I D E N T I A L MELBOURNE 000072 NOFORN SIPDIS E.O. 12958: DECL: 06/19/2019 TAGS: EFIN ECON ETRD AS SUBJECT: MAJOR CHANGES TO AUSTRALIAN PRUDENTIAL REGULATION UNLIKELY Classified By: Justin Kolbeck, Pol/Econ Officer for reasons 1.4(b),(d) Summary -------------- ¶1. (C/NF) The Australian Prudential Regulation Authority's (APRA) senior banking regulator said that changes to Australia's regulation infrastructure will be minor and in line with global consensus. While Australia's major banks remain healthy, there is still substantial debate about whether the banking system here has returned to business as usual. End Summary. Major Changes Unlikely -------------- ¶2. (C/NF) At a June 12 forum in Melbourne hosted by the Harvard Club of Victoria, Wayne Byres, Executive General Manager for APRA's Diversified Institutions Division said that changes to Australia's regulatory structure will be small, but in line with global consensus. Byres, who had just returned from a World Bank/IMF/Fed conference in Washington, said that there is some debate about whether banks need to be smaller. He believes, however, that the international regulatory community is moving toward making banks safer via higher capital requirements. As the primary regulator for Australia's big four banks (ANZ, NAB, Westpac and the Commonwealth Bank) and others, Byres believes that existing banking regulation in Australia is robust, though he noted that the financial crisis in Australia will not be officially over until the big banks stop making use of the GOA's banking guarantee. ¶3. (C/NF) Former Prime Minister Malcolm Fraser, who was in the audience, asked Byres when the Australian bank guarantees would likely be lifted. Byres acknowledged that removing the retail deposit guarantee will be "very, very difficult," but noted that there are already encouraging signs that banks are becoming more independent. Rick Sawers, a co-panelist and senior executive from the National Australia Bank (NAB),said that the big four banks are already making non-guaranteed institutional loans under profitable terms. Sawers contended, however, that Australia's smaller banks still need the guarantees to operate. Consolidation Ahead? -------------- ¶4. (C/NF) There is still substantial debate in Melbourne over the extent to which Australia has seen the worst of the global slowdown. Ric Battellino, Deputy Governor for the Reserve Bank of Australia (RBA) and a co-panelist, argued that the "financial side" of the crisis in Australia has passed, and that the country is now facing the after-effects. Byres, however, said that small and medium size businesses are still struggling. This is a sentiment we have heard from other contacts. Innes Willox, International Director for the Australian Industry Group, told pol/econoff that many smaller businesses in Victoria have been unable to secure financing and are being swallowed by large enterprises. According to Willox, this trend has been particularly strong in the commercial real estate sector. NAB's Sawers admitted that his bank had "lost its appetite" for property risk. Comment -------------- ¶5. (C) Post continues to hear conflicting accounts about whether commercial lending is returning to normal in Australia. Bankers tell us that lending operations are healthy, but admit that they have reached a quota on the real estate and automotive sectors. Small business owners say lending terms are too tough for the current economic climate in Australia. There remains a strong self-congratulatory sentiment here that the Australian banks have sailed through the worst of crisis thanks largely to a strong, centralized regulatory authority (APRA) and sage decisions not to lower lending standards to unsafe levels. End comment. THURSTON