In December 2024, APRA announced it will gradually phase out the use of Additional Tier 1 (AT1) capital instruments (hybrid securities) by Australian banks. As a result, banks are not expected to issue new hybrid securities. Insurance firms and other corporates that issue hybrids are not affected by APRA’s decision. 

APRA believes AT1 hybrid securities haven’t effectively served their prudential purpose of absorbing losses in times of financial stress. The regulator is of the view that replacing AT1 with more ‘reliable’ forms of capital (such as Tier 2 and CET1 capital) will better protect Australian investors if another global banking crisis, like the collapse of Credit Suisse, were to occur.

New issuance is likely finished as of now. The updated prudential framework relating to these changes will come into effect on 1 January 2027 and the final first call date on existing hybrids will be in 2032. Around $40 billion of direct bank hybrids will be called in the next seven years.

Investors can either hold their hybrids until they are called, or sell their hybrids on market. For investors seeking exposure to alternative investments that share some similar characteristics with hybrids, we outline some possible ETF options for consideration.

You can view the important dates below.

Investors who hold units in the Betashares Australian Major Bank Hybrids Index ETF (ASX: BHYB) or Betashares Australian Hybrids Active ETF (ASX: HBRD) do not need to do anything immediately, but should consider their personal circumstances or speak with a financial adviser.

Most of the securities in BHYB will be called between 2029 and 2032, while investors in HBRD have exposure to an actively managed portfolio that has the flexibility to invest in hybrids, investment grade bonds and cash.