RBNZ reviewing capital rules
The Reserve Bank of New Zealand has ramped up its review of capital adequacy requirements in the wake of changes by APRA after the Murray Review and new global rules announced this week for systemically important banks.The New Zealand banking regulator announced in its six-monthly Financial Stability Report that the review flagged in May would include a benchmarking exercise of the internal ratings models used by the Big Four banks to calculate their capital requirements."There's quite a few international developments and we think it's appropriate to step back and review our own minimum requirements in light of those developments," Deputy Governor Grant Spencer told a news conference. He referred to the Murray Review and the Financial Stability Board's announcement in Basel this week of higher standards for loss absorbing capacity for large banks. The bank said in the body of its report that each of the four banks - National Australia Bank's BNZ, Commonwealth Bank's ASB, ANZ New Zealand and Westpac New Zealand - would run an identical portfolio of loans through their own credit risk and capital adequacy models to see if they generated similar capital requirements. The benchmarking project would use a large portfolio of residential mortgages and a small number of 'case study' rural loans.Spencer said the bank did not have a pre-conceived view that banks should have to hold more capital."We don't expect that capital ratios would be reduced, but it's not necessarily the case that they'd be increased," he said."We've had a pretty strong set of standards relative to the international norms, and we just want to review it again and make sure it continues to be strong compared to international norms."The system-wide tier one capital ratio for New Zealand banks at June 30 this year was 11.8 per cent of risk weighted assets, while the common equity tier one (CET1) ratio was 10.5 per cent. These ratios were down from 12.0 per cent and 10.6 per cent respectively six months earlier, but above the Reserve Bank's regulatory minimum CET1 of 4.5 per cent and a further conservation buffer of 2.5 per cent.