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(The following was released by the rating agency) SYDNEY, October 02 (Fitch) Fitch Ratings says there will beno rating impact on Australian bank hybrid capital instrumentsfrom the Australian
Prudential Regulation Authority's (APRA)decision to remove the requirement for it to approve couponpayments that exceed after-tax earnings (the annual profitstest). The change comes as
part of APRA's final Basel III capitalstandards which were published on 28 September 2012. APRA hasstated that it now considers the costs of maintaining the annualprofits test on bank
hybrid capital instruments to outweigh thesupervisory benefits, given the fundamental change to the natureand required levels of hybrid capital under Basel III. The removal of the annual
profits test eliminates one easilyactivated loss absorption trigger of Australian bank hybrids.However, this removal has no impact on coupon payments remainingfully discretionary for Tier 1
hybrid instruments, which Fitchviews as the most easily activated loss absorption trigger. Thisis reflected in Fitch notching Tier 1 hybrids three levels belowa bank's Viability Rating
(VR). When combined with a two-notchreduction for loss severity, Fitch will continue to rateAustralian bank Tier 1 hybrid instruments five notches below abank's VR. APRA approval will
still be required by Australian banks topay ordinary share dividends that exceed after-tax earnings. APRA's Basel III rules will be introduced from 1 January2013, ahead of the timeframe
set out by the Basel committee. Thefinal rules are largely in line with APRA's previous indicationsand do not alter Fitch's view that Australian banks are wellpositioned to meet
the Basel III capital requirements. Keywords: MARKETS RATINGS AUSTRALIANBANKHYBRIDRATINGS