The Reserve Bank of New Zealand (RBNZ) has announced it will lower some capital requirements for the country’s banking sector. This decision follows a review of the rules introduced in 2019. However, the RBNZ has stated that the requirements will remain above international levels, reflecting a relatively conservative approach.
The four major Australian-owned banks operating in New Zealand will see adjustments to their capital requirements. Common Equity Tier 1 capital requirements will decrease from 16 per cent to 12 per cent. Tier 2 capital requirements will increase from 2 per cent to 3 per cent. They will also be required to hold internal loss absorbing capacity of 6 per cent, according to the RBNZ document outlining the changes.
Smaller banks will see their total capital requirements reduced from 16 per cent to 14 per cent. The RBNZ noted that despite these changes, the revised requirements remain “relatively conservative when compared internationally.” The original capital requirements were announced in 2019, with full implementation initially expected by 2028. However, the RBNZ initiated a review in March after concerns from politicians and lenders that the rising requirements were contributing to higher interest rates and negatively impacting the economy.
The central bank estimates that these changes will reduce average funding costs by approximately 12 basis points. They also anticipate an expected annual net benefit of 0.12 per cent of GDP for New Zealand, compared to the full implementation of the previous regulations. New Zealand’s banking sector is largely controlled by four significant Australian-owned institutions: Westpac, ASB Bank (part of Commonwealth Bank of Australia), Bank of New Zealand (owned by National Australia Bank), and ANZ.
