Australia on Wednesday ordered the country's biggest banks to raise capital for the second time in two years and signalled further action to shore up their burgeoning mortgage books, potentially squeezing shareholder returns.
The banking regulator said it would release a discussion paper later this year to include risk weights on mortgages among other changes, in-line with expected rules due to be finalised
by global regulators.
The warning on mortgages came as it raised the target for the four major banks' common equity Tier 1 ratio - a key gauge of a lender's strength - to at least 10.5 percent.
That translates into an average increase of 100 basis points above the banks' December 2016 levels. They are expected to meet the new benchmarks by January 2020.
The Australian Prudential Regulation Authority (APRA) has now ordered the big banks to boost capital twice since 2015 as it seeks to make the sector impregnable to global shocks.
Australia's major lenders - Commonwealth Bank of Australia , Westpac Banking Corp, ANZ Banking Group and National Australia Bank - hold combined market share of more than 80 percent, raising fears their failure could fatally weaken the broader economy.
"Capital levels that are unquestionably strong will undoubtedly equip the Australian banking sector to better handle adversity in the future and reduce the need for public sector support," APRA Chairman Wayne Byres said in a statement.