(Recasts and updates throughout with more detail from announcement)
WELLINGTON, Dec 5 (Reuters) – New Zealand’s central bank on Thursday announced it would go ahead with plans to increase capital ratio requirements for banks, a move that is expected to hurt the bottom line of the top Australian lenders who dominate the market.
The Reserve Bank of New Zealand (RBNZ) said the big four banks operating in the country would have to raise their total capital 18% from a minimum of 10.5% now, and 16% for smaller banks.
The average level of capital currently held by banks is 14.1%, the bank said.
The RBNZ did provide some extra time for banks to implement the changes, saying they would be phased in over a seven-year period from July 2020, rather than the five years as originally proposed.
The RBNZ also offered more flexibility to banks on the use of specific capital instruments, after taking into account industry views after months of consultation. “Our decisions are not just about dollars and cents,” said RBNZ Governor Adrian Orr.
“More capital in the banking system better enables banks to weather economic volatility and maintain good, long-term, customer outcomes,” he said.
High-quality Tier 1 deposits for the top four banks would now need to be 16%, up from the current requirement of 8.5%.
These banks already hold an average of 13.2% in Tier 1 capital.
Smaller banks would have to increase their Tier 1 capital to 14%.
Most vulnerable to the changes are the local units of Australia and New Zealand Banking Group (ANZ), Commonwealth Bank of Australia (CBA), National Australia Bank (NAB) and Westpac Banking Corp, the top four Australian lenders that dominate about 90% of New Zealand’s market.
The quartet would need to raise as much as NZ$20 billion ($12.81 billion) in new capital over the seven-year period to meet the new requirement.
Reporting by Praveen Menon and Charlotte Greenfield in Wellington, additional reporting by Byron Kaye in Sydney; editing by Jane Wardell
LINK ORIGINAL: Reuters