RBNZ releases tougher rules for non-bank sector
The Reserve Bank's risk management guidelines for non-bank deposit takers (NBDT) will boost the requirements of boards to monitor their operations, after the central bank released the first of several documents to introduce prudential regulation in the sector.
Monday, July 13th 2009, 8:55PM
by Paul McBeth
Boards of non-bank lenders will have to take responsibility for the solvency, capital adequacy and liquidity of their companies, along with approving prudential requirements and monitoring any legal compliances, according to the updated risk management programme guidelines.
Non-bank lenders have until September 1 to implement risk management programmes which need "to show how they will identify and manage credit risk, liquidity risk, market risk and operational risks, appropriate to each institution's particular circumstances," the central bank said. The guidelines were finalised after a month of submissions, but won't impose any requirements on the sector, as those will be covered in the upcoming papers.
Other amendments to the draft document are around identifying specific risks to the business. Under credit risks, NBDTs will be required to include procedures to establish and modify lending procedures, as well as identifying "potential defaulting loans or adverse trends" in their loan books. While an extra liquidity risk non-bank lenders will need to be wary of is the high concentration of loans in a specific area of economic activity.
Lenders will also have to manage the risk they face from funding sources if they receive a credit rating downgrade.
The central bank is working towards a March 1 2010 deadline to have the prudential regime in place, and all non-bank deposit takers will require a rating from Fitch Ratings, Moody's Investor Services or Standard & Poor's Ratings Services by this date.
Last week, the Police and Families Credit Union gained a BB+ credit rating with Standard & Poor's, becoming the first credit union to take that step in preparation for central bank requirements on non-bank deposit takers.
Paul is a staff writer for Good Returns based in Wellington.
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