Minimum capital requirements for NZ deposit takers 28 June 2010 4:04PM Sophia Rodrigues New Zealand finance companies face stricter norms from December 1 after the government passed regulations that make it mandatory for them to hold a minimum level of capital and put a maximum limit on related party transactions from December 1.The norms apply to deposit-taking finance companies, building societies and credit unions.The minimum capital ratio requires deposit takers to have a minimum ratio of eight per cent if they hold a credit rating and 10 per cent if they do not have a credit rating. The minimum capital ratio must be included in the trust deed.The new regulations on related party exposure specify that such exposures do not exceed 15 per cent of capital.Meeting the new norms is going to be tough for finance companies that have low levels of capital, and a history of related party exposures. The largest (and still wobbling), South Canterbury Finance, is among the companies struggling to bring down their level of related party transactions, and raise their capital level. The company's prospectus made a mention of increased regulatory environment as one of its key risks.Dorchester Finance, for one, is seeking to avoid the tag of a non-bank deposit taker once its Capital Reconstruction Plan is approved. The aim seems to be to avoid the stricter regime for such a sector.The new regulations also reiterate the type of credit rating deposit takers with liabilities of more than NZ$20 million must have. This requirement has been in force since 1 March 2010.The governance requirements for deposit takers in the Reserve Bank Act will also come into force on 1 December 2010. From that date most deposit takers will need to have two independent directors and a non-executive chairperson.