Big four to shift capital as New Zealand changes buffer

Australia’s major banks are assessing the impact of proposed sweeping changes in New Zealand.

Australia’s major banks, which dominate the New Zealand market, are assessing the impact of proposed sweeping changes that will see them bolster their capital levels across the Tasman.

The Reserve Bank of New Zealand’s substantive changes — open for consultation until March 29 — is likely to see Australian banks shift more capital to their NZ entities or possibly raise new capital, depending on the final shape of the requirements.

The slated changes materially increase the amount of capital held by NZ banks, with the RBNZ suggesting increases will range from 20 per cent to 60 per cent.

The proposals may change risk weightings applied to the assets and drive a jump in the so-called “prudential buffer” banks hold. That would see a tier one capital requirement equal to 16 per cent of risk-weighted assets for large banks imposed.

A report by National Australia Bank’s credit desk suggested if the proposal was implemented in its current form, the big four Australian banks’ subsidiaries in NZ would require at least $NZ9 billion ($8.5bn) in additional capital.

Australian banks account for 88 per cent of the NZ banking system’s assets, with ANZ Bank having the largest exposure to NZ.

ANZ said the changes implied a potential capital increase of $NZ6bn-$NZ8bn.

Westpac said while the impact of the proposed measures was difficult to gauge the bank’s NZ tier one level stood at 14.5 per cent.

NAB said it was reviewing the proposal while Commonwealth Bank was also weighing the impact.