Big Aussie banks ordered to hold billions more cash as buffer against toxic home loans

SYDNEY (REUTERS) - Australia's major banks will have to set aside billions of dollars more to protect themselves against potential losses on home loans after the industry regulator lifted their mortgage capital requirements

The move is widely expected to hit profits and push up mortgage rates, slowing a real estate rush that has economists warning of a property bubble.

The financial regulator also said large banks and mortgage rival Macquarie Group Ltd may have to raise more in future as the country shifts from letting property lenders decide cash reserves to making them follow global standards.

The Australian Prudential Regulation Authority's (APRA) July 2016 deadline for banks to have cash reserves at 25 per cent of mortgage books, from 16 per cent now, adds urgency to a sector-wide restructuring that has already seen lenders raising billions of dollars and selling assets in preparation.

However it will calm investors who have been wary of bank stocks since late 2014 when a government inquiry recommended the change, sending the sector down 8 per cent since March, outpacing the broader market's 5.4 per cent decline.

"It clears it out of the way," said Bell Potter banking analyst TS Lim. "There is enough time for the banks to get it in order. They are well prepared."

Shares of Commonwealth Bank of Australia, the biggest lender with a third of the A$1.2 trillion mortgage sector, traded flat, in line with the market, as analysts said it can likely raise A$3.8 billion with a dividend reinvestment plan.

Fellow "Big Four" lender National Australia Bank Ltd also traded flat. It has the least to raise, about A$480 million, since it recently closed a A$5.5 billion rights issue and plans to list its U.K. unit.

Westpac Banking Corp shares fell 0.3 per cent. The number 2 lender said it must raise A$3 billion and was the most direct about raising mortgage rates, saying "the cost of holding higher capital will inevitably be borne by customers and shareholders".

The smallest of the four, Australia and New Zealand Banking Group Ltd, rose 0.8 per cent. ANZ said it needs to raise A$2.3 billion.

ANZ is considered most likely to pursue "inorganic" capital raising - a rights issue as opposed to dividend reinvestment - since it has kept less of its surplus capital as it pursues Asian expansion.

Macquarie Group, the only other lender to which the new rules apply, saw its shares rise 2 per cent after it said it could cover extra capital requirements from reserves.

In a statement, APRA said the rules are an "interim measure" since the Basel Committee of global bank supervisors will finalise a set of capital rules later this year.

"Further changes to mortgage risk weights will be considered over the medium term in the context of these broader international developments," APRA said.