RBNZ confirms increased capital holdings
(5 December 2019 – New Zealand) The Reserve Bank of New Zealand - a dual regulator which acts as the prudential regulator as well as the central bank - confirmed the proposal requiring Australian banks to hold an additional $NZ20 billion worth of capital but has allowed the banks two more years to get there.
"These changes will be phased in over a seven year period ... we are confident we have the calibration right," RBNZ governor Adrian Orr said at a press conference.
In a statement ANZ CEO Shayne Elliott said the higher capital hurdles would be a burden for the bank but it was pleased the regulator had relaxed aspects of the original proposal.
ANZ and NAB had openly criticised the regulator's plans to lift capital levels by warning RBNZ they may be forced to scale back operations or restrict lending in order to meet the new hurdles.
“Given the extended transition period and our strong capital position, we are confident we can meet the higher requirements without the need to raise additional capital,” Mr Elliott said.
RBNZ said the changes were designed to not only reduce the risk of a bank failing but also a bank falling into difficulty and requiring government help.
"It is the near misses or the bail outs which can be very expensive," Mr Orr said.
RBNZ said it expected the new rules to increase the cost of credit to New Zealand borrowers by 20.5 basis points or a little more than one-fifth of 1 percent.
Among the key concessions made by RBNZ was the decision to allow banks seven years, up from five, to reach the new tier one capital benchmark of 16 percent and to allow preference shares to contribute up to 2.5 percent of the new requirement.
Total capital required is 18 percent of risk weighted assets with 'tier 2' debt instruments permitted to make up the final 2 percent.
RBNZ governor Adrian Orr put the fear into Australian banks in 2018 after news first broke it wanted subsidiary banks operating within its borders to withstand a 'once-in-two-hundred-year event'.
The former head of the country's highly regarded national super fund NZ Super has also embarrassed the local arms of ANZ and NAB after imposing capital penalties for running and signing off on inaccurate capital formulas.