Basel III to impact bank pricing models

Proposed increases in capital requirements for Australian banks could drive changes in the relative pricing of banking products, according to Ernst & Young.

Ernst & Young's Oceania financial services managing partner, Andrew Price, also said organisations will need to assess how they will continue to create value in the new environment. Wealth management will continue to be an attractive growth option for Australian banks, he added.

Banks seeking to gain a competitive advantage through these reforms will need to link the impacts of the changes to their business processes and technology systems, ensuring they understand the impacts for their customers, people and infrastructure, he said.

PricewaterhouseCoopers partner and banking and capital markets leader, Stuart Scoular, said the long-term impacts are still being assessed, but Australian banks appear to be well placed to meet the APRA's proposed new rules.

However, smaller authorised deposit-taking institutions, such as credit unions and building societies, are likely to feel the impact of the reforms more significantly than the major banks, he said.

Australian Prudential Regulation Authority (APRA) chairman John Laker said the proposed Basel III reforms, which require authorised deposit-taking institutions (ADIs) to hold higher minimum levels of better quality capital, supplemented by minimum capital buffers, will enhance APRA's current prudential capital framework for ADIs.

There will also be positive benefits for depositors, other stakeholders and the stability of the banking system as a whole, he said.