Australia, New Zealand propose reforms on AT1 capital rules

New Zealand wants to remove AT1 capital and introduce more granular standardised weights for credit risk. 

Australia and New Zealand are proposing financial regulation changes related to additional Tier 1 (AT1) capital in August 2025, according to Fitch Ratings’ latest Bank Regulation Monitor published in early September 2025.

The Reserve Bank of New Zealand (RBNZ) wants to simplify the capital stack by removing AT1 capital and introducing more granular standardised risk weights for credit risk. This will reduce the total capital that deposit-takers are required to hold by 12% across the system, according to Fitch Ratings, citing the RBNZ proposal.

A second proposal would increase the amount of total loss-absorbing capital, but the amount of common equity Tier 1 (CET1) capital required would fall by another 10%, the ratings agency summarised.

Meanwhile, the Australian Prudential Regulation Authority (APRA) proposes that AT1 issues prior to 1 January 2027 would be eligible to be included as Tier 2 until their first call option dates.

During the transition period, which ends in 2032 at the latest, AT1 would continue to absorb losses ahead of Tier 2 in a resolution event.

The current leverage ratio requirement of 3.5% would be tightened as the ratio would be calibrated to CET1 in the future instead of Tier 1, as it is now, Fitch Ratings summarised.