Reserve Bank sets lender capital ratios under new Basel III regime

Free audio stream, including stories that are padlocked on our site. Listen on any device, anywhere. Updated twice daily. The audio stream takes several seconds to start on Android devices.

Launch Radio player

The Reserve Bank has settled on what it thinks are appropriate capital ratio requirements for the nation's lenders which are set to kick in from next month.

The bank regulator has not moved on its view that banks should be holding a ratio of 4.5 percent of common equity Tier 1 capital in relation to their risk-weighted assets, a Tier 1 capital ratio of 6 percent and total capital ratio of 8 percent.

The banks will also be limited in what they can do if they don't hold a 2.5 percent equity buffer above those ratios.

Tier 1 capital is always freely available to soak up losses without a bank ceasing to trade, while Tier 2 capital only absorbs losses in a winding up.

Most of the new standards take effect from January 1 next year, with a new counter-cyclical buffer that can be applied in times of excessive credit growth coming in the following year.

"The final capital adequacy requirements released today considerably enhance the ability of the New Zealand banking system to absorb shocks, whatever their source," deputy governor Grant Spencer says in a statement.

"New Zealand banks are already well capitalised and this has made it easier for New Zealand to implement the Basel III package ahead of the schedule set by the BCBS (Basel Committee on Banking Supervision)."

Last month, the central bank said it supports the higher Basel III standards, though it would not impose all of the new standards, which would make New Zealand's requirements less conservative.

The bank's regulatory impact assessment found stricter capital ratios reduce the chance of a financial crisis and increase taxable income, though could lead to higher bank lending rates in the short term as shareholders downgrade their expectations for return.

The Reserve Bank is still working on counterparty credit risk and disclosure requirements under the Basel III rules, both of which are set to start early next year.

(BusinessDesk)


Got a question about this story? Leave it in Comments & Questions below.

This article is tagged with the following keywords. Find out more about MyNBR Tags

Comments & Questions

Commenter icon key: Subscriber Verified

Post New comment or question

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.

NZ Market Snapshot

Forex

Sym Price Change
USD 0.7310 0.0009 0.12%
AUD 0.9337 -0.0008 -0.09%
EUR 0.6657 0.0014 0.21%
GBP 0.4722 0.0004 0.08%
HKD 5.6660 0.0071 0.13%
JPY 88.8020 0.0520 0.06%

Commods

Commodity Price Change Time
Gold Index 1204.0 -0.520 2015-05-22T00:
Oil Brent 65.9 1.310 2015-05-22T00:
Oil Nymex 59.7 -1.040 2015-05-22T00:
Silver Index 17.0 -0.081 2015-05-22T00:

Indices

Symbol Open High Last %
NZX 50 5776.0 5810.2 5776.0 0.33%
NASDAQ 5085.4 5103.8 5090.8 -0.03%
DAX 11881.5 11881.8 11864.6 -0.42%
DJI 18286.9 18286.9 18285.7 -0.29%
FTSE 7013.5 7061.7 7013.5 0.26%
HKSE 27723.7 28041.3 27523.7 1.70%
NI225 20331.9 20417.8 20264.4 0.74%