Capital changes afoot for banks in NZ
Proposed changes to the risk-weighted asset component of the capital settings of banks in New Zealand are likely to push the Big Four banks adopt more conservative weightings and lead to higher capital requirements. The Big Four Australian-owned banks operating in New Zealand have, until now, been allowed to use internal models with the Reserve Bank of New Zealand's permission.But it looks like they will lose that privilege and be forced to report using a standardised measure that local banks are currently forced to meet, following consultation and review by the RBNZ.Last year Westpac was sprung using a number of non-approved internal models, and had to increase its minimum capital requirements. ASB breached the conditions of its licence after a miscalculation meant it fell short of its capital requirements for nearly a year.The RBNZ said it favours reporting standardised outcomes alongside the internal models, "to make it easier for external observers to identify unusually high or low model outcomes"."We also want to ensure we are being fair to both large and small banks, and avoid creating unintended competitive advantages," said governor Adrian Orr.