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Small banks fire warning on capital requirements

Four smaller banks have warned that the Reserve Bank's new capital proposals could inadvertently widen the competitive gap between them and the big four.

Thursday, May 23rd 2019, 1:47PM

In a joint letter to the RBNZ, Kiwibank, The Co-Operative Bank, SBS Bank, and TSB state the new capital adequacy rules could make it an even more uneven playing field.

The Reserve Bank's rules are designed to make every bank in New Zealand hold a proportionate amount of cash to guard against risk in the financial system. The RBNZ estimates banks will need to keep an extra 20% to 60% of capital. It plans to double minimum tier 1 capital from 8.5% to 16% for the big four, and to 15% for smaller lenders.

But the four banks say the current proposals may not be effective and could result in "significant differences to residential lending, small businesses banking and agricultural lending risk weightings".

Currently, the big four use internal calculations to work out their capital buffer, while small banks use the "standardised approach". The big four have been able to keep less cash aside as a result. 

Kiwibank, The Co-Operative Bank, SBS, and TSB said they welcomed the RBNZ proposals, in principle. They said  "the  IRB  banks currently enjoy  create  an  uneven  playing  field.  There  is  no  empirical  information  to  suggest  that  the  credit  performance  of  the  IRB  bank  portfolios  is  superior  to  that  of  Standardised banks, or that these IRB models make the portfolios any safer".

The quartet says the rules are far from perfect, however. The banks believe they should be able to meet capital requirements using non-tier 1 capital. Otherwise, they argue, "NZ-Owned  Banks’ growth  will  be  constrained,  limiting competition in the sector." The banks believe tradable bonds and securities should also be counted for small banks.

The four banks argue the big four will maintain an advantage under the new proposals, and will be able to seek tier one capital from their Australian parent groups.

The letter, signed by executives including Kiwibank CEO Steve Jurkovich (pictured), adds: "The current regime favours listed and foreign-owned banks.  In respect of the latter, the Australian banks have an ability to flow through capital from  the  Australian  parent,  often  with  a  regulatory  advantage  from  jurisdictional  arbitrage."

The central bank has taken a tougher line on bank capital in recent months. In a shock move last week, the RBNZ censured ANZ, forcing it to use the standardised approach from now on. The decision will force ANZ to hold an extra $277 million in risk capital.

 

Tags: co-op money Kiwibank RBNZ Reserve Bank SBS TSB

« LVR restrictions stabilise property market: RBNZSFO raids office of Dunedin adviser »

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Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.24 6.75 6.65
ANZ 8.64 7.84 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.24 6.79 6.65
ASB Bank 8.64 7.24 6.75 6.65
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
Bluestone 9.24 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Classic - 7.24 6.79 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 7.84 7.39 7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 7.04 - -
Co-operative Bank - Owner Occ 8.40 7.24 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.74 7.29 7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.69 6.45 6.19
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.75 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.79 7.39 7.25
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 8.25 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 7.25 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.75 7.35 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 8.09 7.59 7.29
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 9.09 8.59 8.29
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.84 7.45 7.25
SBS Bank Special - 7.24 6.85 6.65
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.74 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 8.04 7.55 7.45
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 7.24 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - - 6.45 -
Wairarapa Building Society 8.60 6.95 6.85 -
Westpac 8.64 7.89 7.35 7.25
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.29 6.75 6.65
Median 8.64 7.29 7.32 6.65

Last updated: 8 April 2024 9:21am

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