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RBNZ board says bank will require more resources in the future

Monday 30th September 2019

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The Reserve Bank of New Zealand's board of directors lauded the bank and its governor for navigating a period of "comprehensive change" and sticking to its funding agreement but said it is clear additional resources will be required in the future.

"Our overall assessment is that the bank and governor have responded effectively to the challenges arising from a period of comprehensive change and increases to the bank's workload on many fronts," the board said in the central bank's latest annual report. 

Among other things, the bank has implemented the changes resulting from the Phase One Review of the Reserve Bank Act and has had significant input into Phase Two of the review, has dealt with major regulatory and IT system issues and brought forward considerations of a range of new strategic priorities. 

"Despite widespread, and sometimes unanticipated changes to priorities and work-plans, the bank has remained within the amount provided for in the five-year funding agreement," the board said.  It noted, however, the funding agreement limit is a "material constraint" on the bank's operations and staff resources. 

A five-year funding agreement with the government establishes the amount of revenue the bank may retain to fund its operations. The current agreement covers the five-year period ending 30 June 2020. It provided funding of $66.3 million for 2017-18 and $61.3 million for 2018-19.

"It is clear that in order for the bank to meet public expectations, to continue to meet the highest standards of monetary policy formulation, to increase its regulatory/supervisory capability and to be more externally engaged in both traditional and new policy interests, additional resources will be required in the future," the board said.

The central bank said it would pay $195 million as a dividend to the government versus $430 million a year earlier.  The lower amount is largely due to the fact that it made a $34 million loss on foreign exchange revaluations in the year ended June 30, compared to a gain of $237 million in the prior year.

The surplus for the year fell to $243 million from $456 million, the bank's annual report shows.

Operating expenses totalled $85.9 million in 2018-19, $10.1 million more than in 2017-18. This was largely due to higher staff costs, which related to an increased number of bank staff across a wider set of projects.

There was also an increase in asset management expenses, which included a write-down of $3.3 million and other operating expenses that were higher than expected as a result of the government’s review of the bank’s legislation, regulatory actions taken by the bank, asbestos remediation work in its Wellington headquarters, and costs associated with relocating Wellington staff for approximately eight months while remedial work was conducted.

The central bank also reiterated in the report that it needs to improve the resilience of New Zealand’s financial system while conditions remain favourable and noted it has been consulting on proposals to raise bank capital requirements.  

The board noted the capital review has attracted considerable public comment and created greater awareness of the importance of the quality of capital and capital ratios for financial stability. It said it has closely followed the public commentary and has been open to hearing the views of senior executives, chairs and board members of the banks operating in New Zealand.

"The quality of the consultation process, engagement with the affected institutions and the bank’s willingness to provide additional information or undertake further analysis in response to feedback, have been key areas of focus for the board," it said. 

It underscored it is mindful of the finance minister's "expectation that we test the bank’s thinking on regulatory proposals and be satisfied that the bank has reasonably considered and addressed alternative perspectives." 

(BusinessDesk)



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