ASX 200 banking stocks rejoice. Life just got harder for new neobanks
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S & P / ASX 200 Index (ASX: XJO) Bank stocks could see their future competition weaken as the Australian Prudential Regulatory Authority (APRA) tightens its controls on new banking licenses.
Under APRA’s new rules, new authorized deposit-taking institutions (banks) will have to take additional steps before gaining favor with the regulator.
This could see ASX 200 banks with less competition on their block in the future, especially from neobanks.
Neobanks are banks that exist only online. Thought, Dough Ltd (ASX: DOU) and the recently collapsed Xinja.
Let’s take a look at the new rules.
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ASX 200 bank stocks may be in the spotlight today as their potential competitors feel the blues.
After Xinja’s failure, APRA now requires new banks in the bloc to provide both deposit and income-generating products.
Of course, Xinja offered deposit options only to its customers, prohibiting launching real income-generating products. Xinja’s banking license barely passed its first anniversary before the old bank threw in the towel.
Not much has changed for established banks like those in the ASX 200. However, APRA is now calling on all banks to put in place contingency plans to get through tough times. Banks are also required to plan how they would exit banking if they flopped.
New banks will also need to maintain a generous capital conservation cushion – a certain amount hidden away in the event of a rainy day. As well as a limit on the amount of money they can keep for their clients.
APRA will now provide 3 types of banking licenses:
- The first is a 2-year limited license, allowing a new bank to get started while planning how it would reimburse its customers if everything went wrong.
Restricted banks have a deposit limit of $ 2 million and must have $ 3 million in permanent capital and $ 1 million in resolution reserve.
If a new bank has a fair amount of money in its vaults and a history of running a successful banking business, it can ignore this license.
- The next is a new license. Banks that hold a new license have higher capital requirements that they must meet.
- And finally, existing banks like those on the ASX 200 can continue to function normally. However, that doesn’t mean APRA won’t look over their shoulder!