Coronavirus: Big four banks win reprieve from NZ capital rules

Australia’s big banks have an extra year to prepare for $20bn worth of new capital rules as New Zealand frees up lending.

Australia’s big four banks dominate New Zealand banking. Picture: AAP

Australia’s big four banks have been given a reprieve from $20 billion worth of tough new capital rules by the Reserve Bank of New Zealand, which is hoping to free up the lenders to inject up to $NZ50 billion worth of extra loans into the economy to offset the impact of the coronavirus.

New Zealand's delay of the implementation of higher capital requirements came as the nation’s Reserve Bank slashed its cash rate by 75 basis points to 0.25 per cent.

The major Australian lenders dominate New Zealand’s financial system, controlling about 90 per cent of deposits. ANZ and Westpac operate under their own brands, while Commonwealth Bank runs ASB Bank and National Australia Bank owns the Bank of New Zealand.

In a move to protect taxpayers from the cost of a potential bank bailout in unforeseen circumstances, the RBNZ model is three percentage points higher than the Australian Prudential Regulation Authority’s “unquestionably strong” plan locally.

Under the new measures announced last year by RBNZ governor Adrian Orr, the major banks were required to raise their “tier one” capital ratios to 16 per cent of risk-weighted loans, almost double the current minimum of 7 per cent, costing the system an extra $20 billion.

While the lenders were given seven years to meet the new RBNZ rules, with a transition period starting in July this year, RBNZ deputy governor Geoff Bascand said on Monday the Kiwi central bank would be pushing out the timetable due to the impact of the coronavirus.

“To support credit availability, the bank has decided to delay the start date of increased capital requirements for banks by 12 months — to 1 July 2021. Should conditions warrant it next year, the Reserve Bank will consider whether further delays are necessary,” Mr Bascand said.

“We are taking this action now to help support lending in the economy at time when there is a lot of uncertainty.

“The Reserve Bank’s expectation is that banks will utilise this flexibility to maintain lending to households and businesses. Banks have significant buffers above current regulatory minimums, and we encourage them to use them,” Mr Bascand said.

“Deferring the capital framework implementation provides banks with significant capital headroom. We estimate that this headroom will enable banks to supply up to around $47 billion more lending than would have been the case, had the decisions been implemented as planned.”

The RBNZ’s capital move was expected to reduce the amount of profits sucked out of New Zealand back to the parent entities in Australia.

The big four banks have been hammered over the last few weeks, shedding more than $100 billion in shareholder value across the four ASX-listed stocks since late February.