ASX 200 bank shares rejoice. Life just got tougher for new neobanks

New kids on the banking block will have to raise the bar from now on.

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A dismayed businessman holds up a stack of new rules and regulations

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S&P/ASX 200 Index (ASX: XJO) bank shares may see their future competition dwindle as the Australian Prudential Regulatory Authority (APRA) tightens its controls on new banking licences.

Under APRA’s new rules, new authorised deposit-taking institutions (banks) will have to jump through additional hoops before gaining the regulator’s favour.

This could see the ASX 200 banks with less competition on their block in the future, particularly from neobanks.  

Neobanks are banks that purely exist online. Think, Douugh Ltd (ASX: DOU) and the recently collapsed Xinja.

Let’s take a look at the new rules.

ASX 200 banks in focus on higher hurdles for new kids

ASX 200 bank shares may be in the spotlight today while their potential competitors feel the blues.

Following Xinja’s failure, APRA now requires new banks on the block to provide both deposit and income-generating products.

Of course, Xinja famously offered deposit only options to its customers, negating to launch any real income-generating products. Xinja’s banking licence barely made it past its first birthday before the former bank threw in the towel.

Not much has changed for established banks, like those on the ASX 200. However, APRA now calls on all banks to have response plans in place to navigate tough times. Banks are also required to plan for how they’d exit the banking business if they flopped.

New banks will also have to keep a generous capital conservation buffer – a certain amount tucked away in case of a rainy day. As well as a limit on how much cash they can mind for their customers.

From now on, APRA will provide 3 types of banking licences:

  • The first is a 2-year restricted licence, allowing a new bank to get on its feet while planning how it would pay back its customers if it all goes wrong.

    Restricted banks have a $2 million deposit limit and must have $3 million of ongoing capital and $1 million in a resolution reserve.  

    If a new bank has a good amount of cash in its coffers and a history of running a successful banking-related business, it can skip this licence.
  • The next is a new licence. Banks that hold a new licence have higher capital requirements they must meet.
  • And finally, existing banks like those on the ASX 200 can pretty much continue working as normal. Though, that doesn’t mean APRA won’t be looking over their shoulder!

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