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FINSIA to hold forum in New Zealand on bank's capital

by Lewis Panther | 13 Jun 2019
Plans to make New Zealand banks hold more capital on the balance sheet to shield against a disastrous run will be the subject of a FINSIA forum.

Requirements for banks to hold enough cash to help withstand future financial shocks - including a one in 200-year crisis - has provoked a wave of unprecedented condemnation.

Senior executives from the major banks responded to the Reserve Bank of New Zealand’s outline proposals, speaking openly about what harm they feel it will do to the economy.

Relations between the RBNZ and Australia’s four major banks – which have an 86 per cent share of the lending market – have been strained since the measures were revealed in December.

Claims that it could add $6000 a year to the average Auckland mortgage came from Westpac.

Now Reserve Bank governor Adrian Orr has asked us to get feedback from finance professionals at an open forum next month. 

Bernard McCrea, SFFin, Chairman of the New Zealand FINSIA council,  said the event would give CEOs the chance to speak openly and directly to the governor Orr.

“We are the right people to stand in the middle thanks to our position across the banking industry,” he said. 

Since the announcement of the safety net proposals, the RBNZ has been forced to defend its stance on a regular basis as the big banks hit out. 

Westpac’s response to the RBNZ capital consultation suggested borrowers would be hit hard by the plan.

The Westpac submission, written by regulatory affairs general manager Mark Weenink, said the plan would require banks to raise $25bn, including $4.5b for Westpac alone.

And the amount needed to be raised would grow in line with any increasing in lending.

"In order to fund growth at a rate of 3 per cent over the proposed five-year transition period, Westpac would be required to raise additional [core tier one] capital of $6.5b," Weenink wrote.

Horticulture New Zealand CEO Mike Chapman has also spoken out about the proposals, claiming they will lead to a weakening of the economy.

He said: “The more money banks are required to hold, the less money they can lend. 

“This in turn could increase the cost of loans, and may mean that some loan applications will be declined. $20 billion is a lot of money to take out of the banking system.”

Deputy governor Geoff Bascand said the bank's proposals were about "putting the roof on while the sun is shining”.

He said: “Part of what's in these proposals involves quite a bit of levelling the playing field."

“It is removing what we think is an artificial advantage that the big four banks have over the rest of the banking sector.”

In a speech he made in February in which he referred to the banks needing to have more “skin in the game”, Bascan laid out the serious social impact a failure would have.

He said: “We would expect that the impact of bank failures would be broader and harsher the larger and more intertwined the failed banks are with New Zealand’s economy."

“Not only do New Zealand’s large banks employ a significant number of New Zealanders, but these banks also provide the vast majority of financing for individuals and businesses in New Zealand."

"While shocks to the banking system cannot be avoided, particularly those that originate from outside our borders, we believe that by making some changes to our banking rules, we can improve the prospects that our banks will survive those shocks and be able to continue lending."

“And by doing so, we can improve the economic and social wellbeing of all New Zealanders."

Twenty banks operate in New Zealand — 16 in the retail market.

The big four banks would have five years to increase their capital ratio from the current 12% to 16%.

The bank expects a combined increase in capital of around $20 billion among the big four as a result of higher capital requirements.

The changes form part of a review into bank capital that began in early 2017.

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