New Zealand banks fight back

Adrian Orr, governor of the Reserve Bank of New Zealand. Picture: Bloomberg

New Zealand Reserve Bank governor Adrian Orr and the country’s banks have returned to the trenches after a fusillade of artillery fire yesterday over the central bank’s proposed capital reforms.

Orr, who is no relation to the Hayne royal commission inquisitor Rowena Orr, wants to make bank failures so rare they only occur once every 200 years, if that.

The counterargument of the banks is that the cost of Orr’s insurance policy is prohibitive.

If you think you’ve seen this movie before, you’re right.

The key recommendation of the David Murray-chaired financial system inquiry was that Australia’s banks have to be “unquestionably strong” to maintain access to wholesale funding markets in a crisis.

The banks have screeched in pain, just as they are doing now across the ditch through their NZ subsidiaries, as target common equity tier-one ratios ramp up to 10.5 per cent by January next year.

Orr, however, wants CET1 ratios of 16 per cent, equating to $NZ25 billion more capital or $NZ2.5bn in extra industry funding costs, according to Westpac.

The key problem is that the banks have completely lost confidence in the process put in place by the RBNZ.

What’s more, Orr is all-powerful — unlike Australia, the RBNZ is responsible for monetary policy and prudential regulation. The governor can effectively double capital requirements for the country’s banks without answering to any other agency or individual.

The trigger for the industry’s loss of confidence was the RBNZ’s failure to complete a cost-benefit analysis before it released its ambitious proposal late last year.

Orr can protest all he likes — and he did yesterday — that he’s bent over backwards to get all the relevant data, but the fact remains that his examination of the “net benefits” with the help of outside experts will occur after final submissions closed on May 17.

Opposition finance spokesman Amy Adams told the governor in a parliamentary committee hearing yesterday that the choice of experts, one of whom had already published a paper strongly in favour of Orr’s proposal, made it look as though the process was designed to achieve the RBNZ’s preferred outcome.

“I assume you are saying we’re opinion-shopping — I strongly disagree with your assertion,” Orr countered.

“We’ve gone to global expertise and we’ll be working with our independent experts and all will be transparent.

“I have said on the record many times but it doesn’t land on the ears of the financial sector, and often in the media, that the whole framework is a net-benefits framework, which you could call a cost-benefit framework in anyone else’s language.”

The banks, in particular ANZ Bank and Westpac, have made it crystal clear they’re willing to curb credit growth and deploy their capital elsewhere if the proposed measures are adopted.

The RBNZ is expected to make a final decision before the end of the year.

Give them some credit

It might have taken a while, but the major banks are responding to widespread complaints from the small business sector about lack of access to unsecured credit.

National Australia Bank was first to market in 2017 with QuickBiz; now Commonwealth Bank has matched it with the launch of BizExpress in March. As with many products developed by the big four banks, they’re the same but different.

QuickBiz, which offers direct connectivity to Xero or MYOB accounting data, offers online loans of up to $100,000, with the whole process often taking less than 20 minutes.

BizExpress promises an even faster turnaround — under 12 minutes — for unsecured loans of less than $250,000, as well as secured loans on the same day of up to $1 million.

Matt Comyn announced the initiative on Tuesday in his first major speech as Commonwealth Bank CEO, in which he pledged to invest $5 billion over the next five years to keep the lender at the forefront of rapid technological change.

Comyn described it as a “big step forward” for the provision of credit in a responsible and timely way for customers.

While it’s a welcome development for small businesses which have complained bitterly about the need to pledge the family home as security for a business loan, the small business lending platforms are a long way from achieving critical mass.

At NAB, for example, business banking boss Antony Healy manages a $200bn balance sheet.

QuickBiz, which accounts for 45 per cent of new SME lending, saw a 57 per cent increase in the number of loan applications in the first half of 2019 compared to a year ago.

However, the platform has only processed $60m of loans.

CBA head of business customer solutions Clive van Horen told Four Pillars yesterday that BizExpress might be a niche product now but increasingly would become the standard way in which business was conducted.

The platform would be expanded to offer cashflow lending to a wider range of borrowers, including non-CBA customers, and the cap on the size of the loan would increase.

Comyn said on Tuesday that after the return of the Morrison government on May 18, CBA had enjoyed its best week for home loan applications in six months.

Van Horen said business sentiment also seemed to have improved, although the lead-up to the end of the June financial year was always a busier time.

[e-mail]
Twitter: @gluyasr