RBNZ says ANZ has to hold more capital against housing and farm lending

Wednesday 29th May 2019

The Reserve Bank has imposed new conditions of registration on ANZ Bank requiring it to hold more capital against housing and farm lending from June 30.

In its latest Financial Stability Report, the central bank says it has set minimum risk weights for ANZ, New Zealand’s largest bank, on the two lending categories.

“Risk weights measure the riskiness of loans within a portfolio and determine capital requirements,” RBNZ says.

“Minimum risk weights for ANZ were set following the conclusions of the Reserve Bank’s benchmarking project. This project assessed the conservatism of housing and rural credit risk models used by banks accredited to model their own credit risk capital requirements,” it says.

Only the four major banks, which are all owned by Australia’s major four banks, are allowed to use their own internal models to calculate capital.

In February, RBNZ revealed that the advantage ANZ gains from using internal models meant ANZ was only required to hold slightly more than half the capital that the government-owned Kiwibank needs to back each $100 of mortgage lending.

Kiwibank, along with all the New Zealand-owned banks, is required to use standardised models.

The latest restrictions on ANZ follow RBNZ’s announcement earlier this week that ANZ was going to have to use the standardised model to calculate operational risk capital (ORC) from now on because it had been using an unapproved ORC model since December 2014.

The ORC model is one of about 45 internal models ANZ uses.

(BusinessDesk)

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