On Friday (14 December), the central bank released a consultation paper in which it proposed “to almost double” the required amount of high-quality capital that banks will have to hold.
“In practice, actual changes to the amount that they hold will be less than double and will vary. The increase will depend on their current levels of capital, how much extra they choose to hold above the required minimum, and whether they are a large or small bank,” the bank said.
“Generally, it will be an increase of between 20 and 60 percent. This represents about 70 percent of the banking sector’s expected profits over the transition period. We expect only a minor impact on borrowing rates for customers.”
RBNZ deputy governor Geoff Bascand said that insisting that bank shareholders have a meaningful stake in their bank provides a greater incentive to ensure it is well managed.
“Having shareholders able to absorb a greater share of losses if the company fails also provides stronger protection for depositors,” he said.
“While borrowing costs may increase a little, and bank shareholders may earn a lower return on their investment, we believe these impacts will be more than offset by having a safer banking
The deadline for feedback is 29 March 2019, but a number of Australia’s big four banks that have operations in New Zealand have responded to the proposals.
ANZ said it has a number of questions and comments in relation to the consultation paper.
“Based on the potential changes set out in the consultation paper, and ANZ’s New Zealand balance sheet as at 30 September 2018, the changes imply a potential capital increase in New Zealand of NZ$6 billion to NZ$8 billion (A$5.7 billion to A$7.7 billion ),” the group said in a trading update.
ANZ New Zealand currently has approximately NZ$12 billion of Tier 1 capital (A$11.3 billion.)
CBA said it is reviewing the paper to determine potential impacts on the group’s capital requirements and will participate in the consultation process through its New Zealand-based subsidiary, ASB Bank (ASB).
As at 30 June 2018, ASB’s Total Common Equity Tier One Capital was NZ$5.9 billion, Total Tier One Capital was NZ$6.9 billion and Total Capital was NZ$7.7 billion. CBA’s Total Capital as at 30 June, 2018 was A$69 billion.
Westpac, which operates Westpac New Zealand Limited (WNZL), said it will provide a submission to the central bank and will update the market “once details become clearer”.
NAB provided a brief statement to the ASX noting that it is reviewing the consultation paper and will participate in the consultation process with RBNZ.
