Reserve Bank of New Zealand governor Adrian Orr said the changes would make banks more resilient.Credit:Ross Giblin
The big four told the market in separate announcements that the combined capital required in New Zealand would increase by up to $NZ14.4 billion ($13.8 billion). ANZ,the most exposed of the banks,said it would not need to raise new equity.
The RBNZ said"systemically important"banks would need to lift their total capital to 18 per cent of risk-weighted assets,a significant increase from 10.5 per cent now. However,banks will have seven years to meet the new rules,rather than five years as previously proposed. They will also be able to fund some of the increase in capital by issuing other financial instruments,aside from equity,such as redeemable preference shares.
The concessions to the big four,which have lobbied against the proposal since it was flagged a year ago,caused the lenders'share prices to post solid gains on Thursday. Even so,analysts said the tougher requirements would likely act as another"headwind"for returns,alongside a weak economy,stiff competition and high compliance costs.
Jefferies'banking analyst Brian Johnson said the tougher capital rules in NZ needed to be seen alongsidea change in Australian regulations that limits how much capital Australian lenders can have tied up overseas."It's another dividend servicing headwind,"Mr Johnson said.
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Morningstar analyst Nathan Zaia said the banks could shrink their commercial loan books in NZ as a result of the changes,which would act as a"slight drag"on group-wide return on equity.
Shaw and Partners banking analyst Brett Le Mesurier said the banks were likely to respond to the changes by retaining a higher share of the profits made across the Tasman in their NZ businesses.