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Reserve Bank changes its mind on Kiwibank bonds

Kiwibank said that the RBNZ has issued a non-objection letter about the bonds after the lender made changes to address the central bank's concerns.

Sophie Boot
Thu, 10 Aug 2017

The Reserve Bank will recognise two bonds issued by state-owned Kiwibank as regulatory capital under the Capital Adequacy Framework, having previously rejected them.

The ruling covers $100 million Tier 2 convertible subordinated bond issued in June 2014 and $150 million of Additional Tier 1 perpetual bonds issued by Kiwibank subsidiary Kiwi Capital Funding Ltd (KCFL) in May 2015.

Kiwibank said that the RBNZ has issued a non-objection letter about the bonds after the lender made changes to address the central bank's concerns. Previously the bank concluded Kiwibank had levels of control or significant influence over KCFL it viewed as inconsistent with the securities qualifying as regulatory capital.

The lender cancelled an A$175 million bond issue in March as a result of the RBNZ's preliminary decision and subsequently, shareholders New Zealand Post, the New Zealand Superannuation Fund and Accident Compensation Corp poured in a collective $247 million in new equity capital to ensure Kiwibank's capital stayed within the regulator's limits.

Kiwibank's chief executive Paul Brock said what now happens to that $247 million is a decision for the bank to make.

"Decisions on our capital composition are a matter for our shareholders and the Kiwibank board," he said.

The RBNZ has been reviewing the definition of bank capital, the measurement of risks that the banks face, and the minimum capital requirements and buffers to set up a regime that provides confidence in the banking sector. It wants to complete a review of banks' capital settings by early next year.

In July, the central bank released a second options and issues paper on a wide-ranging review of the system's capital framework. It proposed limiting common equity and preference shares as the only allowable instruments qualifying as Tier 1 capital, and long-term subordinated unsecured debt without triggers that freeze interest payments as Tier 2 capital. Other instruments would still be available for banks to use to fund their operations but wouldn't go towards the regulated capital levels.

(BusinessDesk)

Sophie Boot
Thu, 10 Aug 2017
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Reserve Bank changes its mind on Kiwibank bonds
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