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ANZ Bank says regulatory imposts have reduced its common equity

Monday 29th July 2019

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Australia-based ANZ Bank says the new conditions of registration the Reserve Bank imposed on its New Zealand subsidiary in late May mean its group tier 1 common equity has fallen 20 basis points.

RBNZ had required the subsidiary to hold more capital against housing and farm lending from June 30.

Other regulatory and prudential changes imposed by RBNZ and the Australian Prudential Regulation Authority mean the parent bank’s group tier 1 common equity ratio has fallen from 11.8 percent at June 30 to 11.3 percent on a pro-forma basis.

ANZ says that is still “well in excess of APRA’s ‘unquestionably strong’ requirement of 10.5 percent.”

ANZ’s New Zealand subsidiary is this nation’s largest bank and it was apparently the most aggressive of the four Australian-owned banks in using its own internal models to calculate how much capital it needs.

The four Australian-owned banks are the only ones allowed to use internal models while all the New Zealand-owned banks have to use standardised models.

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

An RBNZ stress test of how much capital the four largest would require for the same hypothetical portfolio of dairy loans also showed a wide disparity between those banks.

Also in May, RBNZ forced ANZ 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.

The additional conditions of registration imposed on ANZ came ahead of RBNZ decisions expected later this year on how much capital all banks should hold.

The central bank has proposed that the advantage the big four banks, which account for about 88 percent of New Zealand’s banking system, be limited to no more than 90 percent of the standardised measure.

RBNZ has also proposed lifting the minimum tier 1 common equity required by the big four banks from 8.5 percent of risk-weighted capital to 16 percent and to 15 percent for the other banks.

(BusinessDesk)

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