Australia's smaller banks are set to benefit from the new rules that have been imposed on the banking sector that will require the big four to hold more capital in reserve, which could see them competing less for home-loan customers.
Under the new rules, which were confirmed by financial regulators late last year, the big banks, namely ANZ (ASX: ANZ), National Australia Bank (ASX: NAB), Westpac (ASX: WBC) and Commonwealth Bank (ASX: CBA), will each be required to hold more capital. Each will be required to hold an additional 1% of capital which will total an extra $6-7 billion combined.
The rules will take effect as of 2016 and have been designed to act as a safeguard against a major economic downturn. This is because each of the banks are considered 'too big to fail' and play such an important role in the economy.
While the major banks were targeted by the new regulations, regional banks including Bank of Queensland (ASX: BOQ) and Bendigo and Adelaide Bank (ASX: BEN) were excluded. Other institutions competing in the home loan market such as Macquarie Group (ASX: MQG) also received a bye. This should give them an advantage over the big four which win roughly 90% of new mortgages.
As reported by The Australian Financial Review, Nomura analyst Victor German said that the tougher requirements could see the big four compete less aggressively for home-loan customers. This would give the smaller players a better opportunity. He said: "What we might see is a little bit of a step back on the competitive front."
Foolish takeaway
One of the key concerns that arose when the new regulations were announced was that the banks may not be able to maintain their dividend payments in the short term. Analysts now believe that it will not impact their regular dividend payments although it will likely impact their ability to undertake share buybacks or to offer special dividends in the near future.
Each of the banks delivered strong gains in 2013 and are now trading at unattractive prices. Investors looking for high-yielding dividend stocks should look elsewhere for more attractive opportunities.
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