Westpac sitting on plenty of cash Fears the big Australian banks are going to be hobbled by tough new capital adequacy rules created in the wake of the global crisis aren't borne out by the profit results that ANZ, NAB and Westpac have announced in the past week. Westpac completed the trifecta on Monday morning by announcing an 8 per cent rise in full year cash earnings to $7.1 billion for the year to September. Cash earnings in the second half rose by a slower 1.3 per cent to $3.57 billion, which reflected lower treasury revenue in quieter markets rather than a loss of momentum in the banking businesses themselves. The banks are reporting very comfortable bad and doubtful debt positions. Westpac in particular is comfortably geared. The size of the capital overlay is yet to be finally determined by APRA and while it will be implemented from the start of 2016, the pace of implementation is also yet to be announced. Westpac chief executive Gail Kelly noted on Monday morning that in Canada, banks will get three years to hit the mark. I doubt Westpac would have declared its final special dividend of 10 cents a share if APRA had serious concerns that it was going to struggle to meet the new capital requirements, and while Westpac's tier 1 ratio is the best of the big four, the other banks are also pretty well positioned. The new global capital rules set 7 per cent as the base for bank tier one capital, effective 2018. An overlay of 1.5 percentage points for the big four Australian systemically important domestic banks as part of the global DSIB regime is almost certainly the worst case and would see the big four running minimum tier one ratios of 8.5 per cent. Westpac spent about 20 basis points of tier one capital in the year to September on its two special dividends of 10 cents each (if they had not been paid, its retained earnings and tier 1 capital would have been higher). It still earned enough to boost its tier one capital base by 94 basis points or almost 1 percentage point to 9.1 per cent. The other big banks have lower tier one ratios. ANZ's tier one ratio is 8.5 per cent, CBA's 8.2 per cent and NAB's is 8.43 per cent. They do however still have time to build them and given the profits they are all earning, they shouldn't need to take an axe to dividend payouts to do so. Westpac's balance sheet was so strong at September 30 that the real question now is not how it meets tougher capital adequacy standards, but what it does with the balance sheet muscle it has built up. It supplied part of the answer in mid-October by committing about 38 basis points of tier one headroom to the $1.45 billion of loan and finance portfolios from British-based Lloyds. Kelly also said on Monday morning that while Westpac only grew its home mortgage book at 0.8 per cent of the national growth rate over the year to September, it had lifted the growth rate up to 0.9 per cent of the national market by September. The head of the group's Australian financial services business, Brian Hartzer added that mortgage lending growth accelerated further after September 30 and Kelly says the target is to lift home lending to match system growth. Even then there could be room for at least one more special dividend for shareholders.