New Zealand’s capital plan “annoying but not dire” for Aussie banks
The decision by the Reserve Bank of New Zealand to boost the capital requirements of its banks will add uncertainty for Australian banks but the situation is not dire for their Kiwi subsidiaries.
This is the assessment of Brad Potter - head of equities at Nikko Asset Management who sees the new measures as more of an “annoyance”.
The Reserve Bank of New Zealand issued a consultation paper that proposes that its banks hold between 20 per cent to 60 per cent of capital – which will “hold back” 70 per cent of their earnings over a five-year transition period.
The paper is part of a wider review by the central bank on the capital adequacy of New Zealand’s banks which began early in 2018.
For Potter, the measure would make New Zealand’s banks the best capitalized in the world.
“Everyone is just piling on. Just when Australian banks finalised their capital requirements [under the so-called Basel IV regulatory framework] – now there is a little uncertainty around the impact of what New Zealand’s move will mean to their capital position.
According to Potter, the banks can easily tackle their new capital position during a five year period, however, “worst case scenario” would see a 3 per cent decline in earnings per share over that period.
“The issue will be around whether APRA allows them to move some of their capital in Australia to New Zealand.”
He sees New Zealand’s measure impacting ANZ more than the other banks given that their subsidiary is the largest in the country.
“It’s a little bit uncertainty and disappointing that the Zealand regulatory authorities have taken this action, but I guess it’s their right.”