PwC says NZ banks would effectively hold 27.1% equity if RBNZ proposals are adopted

Monday 20th May 2019

New Zealand’s major banks already hold more capital than Australian, Canadian, Austrian, Irish and Singaporean banks, a new study by PricewaterhouseCoopers has found.

Domestic capital levels, when compared on a like-for-like basis, are comparable to banks in Sweden, Denmark and Finland and inferior only to banks in Norway.

But if the Reserve Bank’s bank capital proposals are adopted, that will push New Zealand way above all peer countries, including Norway, to effectively 27.1 percent of risk-weighted assets.

The New Zealand Bankers' Association commissioned PwC to update its 2017 work on international comparisons and to take into account feedback of the first report.

PwC notes that New Zealand and Australia apply stricter requirements than the Basel framework but most other countries do not.

New Zealand’s major banks are already well capitalised and “are at or above what APRA (the Australian Prudential Regulation Authority) would consider to be ‘unquestionably strong’ (and) they are in the top quartile of large international banks,” PwC says.

APRA classifies common equity of 10.5 percent of risk-weighted assets to be “unquestionably strong.”

“The proposed capital changes would cause the NZ major banks to hold more than double the capital compared to the average held by large international banks.”

It estimates the median common equity capital of large international banks currently is 12.4 percent of risk-weighted assets and the 75th percentile is 14.4 percent.

By contrast, the Australian major banks – which own New Zealand’s major banks – are at 15.1 percent and their New Zealand subsidiaries are at 15.5 percent.

That’s slightly lower than its 16 percent estimate in its previous report.

The Reserve Bank’s proposals include a near doubling of the minimum common equity each of the four major banks have to hold from 8.5 percent of risk-weighted assets to 16 percent.

It also wants to reduce the advantage those banks receive from using their own internal models for calculating risk to no more than 90 percent of the results from using standardised models.

The big four banks account for about 88 percent of New Zealand’s banking system.

(BusinessDesk)

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