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Reserve Bank delays bank disclosure reforms

Thursday 24th November 2016

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The Reserve Bank of New Zealand has extended for two weeks its deadline for feedback on a proposed new Dashboard approach for banks’ financial disclosure aimed at making it easier for retail investors to compare how sound the lenders are, and will make a final decision on whether to proceed early next year.

The proposal for quarterly disclosure arose out of the Reserve Bank’s Regulatory Stocktake last year aimed at improving the efficiency, clarity and consistency of prudential requirements for banks and non-bank deposit makers. It was thought that current bank disclosures largely contain the right information the public need to see, but could be made more accessible and comparable.

Banks already publish quarterly disclosures on their own websites, including the more detailed full-year disclosure statements. A consultation document the Reserve Bank released in September suggests replacing quarterly disclosures with the Dashboard published on the central bank’s website.

They wouldn’t be signed off by banks’ directors, unlike for the full and half-year results which will remain in place, in order to make them more timely - released within a month.

The proposal includes side by side comparisons of locally-incorporated banks according to key metrics - credit ratings, capital adequacy, asset quality, net profit, non-performing loans, and total assets. It could potentially include loan-to-value ratios and large credit exposures depending on feedback and the top line numbers for retail investors would be supplemented by detailed information sitting in behind for more sophisticated analysis.

Some of the information will be drawn from public information already disclosed and some from content provided by the banks in private reporting to the central bank.

Toby Fiennes, head of the Reserve Bank’s prudential supervision department, said the aim of the Dashboard was two-fold, centred on improving market discipline.

One side is raising interest from depositors and other retail investors on the relative safety of the banks and the other is if the banks know they are under scrutiny, there is more incentive to be safe and show they are safe, he said.

Fiennes admitted the bank had not done any study on the factors that have led to bank collapses overseas to find out what metrics may have exposed those before they happened.

“The more capital a bank has the less likely there is to be a bank failure. It’s not a perfect match because all sort of things can be hidden in the core numbers and a bank failure can happen very quickly even with a one-month lag,” he said. “But it shows the relative resilience of the banks.”

He said designing something simpler that the public would take notice of was “the holy grail” the central bank had been chasing for some years but was difficult to do and did depend on people being willing to find out the information.  Investors couldn’t just rely on credit ratings from rating agencies which had “suffered a negative reaction since the GFC”, he said.  

One of the objectives is to lower compliance costs for retail banks with an estimated $100,000 spent on the current quarterly disclosures by larger organisations.

It’s also considering reporting separately on the central bank’s website any bank breaches which are currently covered in the quarterly disclosures and shifting quarterly reporting of new capital issuances to six-monthly in the half and full-year results.

If it goes ahead, the Dashboard is likely to be introduced in the middle of next year. If it doesn't, the bank's Plan B option is to reduce current quarterly disclosures to essential information that still meets international standards but would have less detail than the Dashboard.

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