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Last Article Uploaded: Friday, January 21st, 7:18PM

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RBNZ reviews banks' risks

The risks that banks face which are outside their normal trading activities are being reviewed by the central bank.

Wednesday, December 1st 2021, 6:00AM

by Eric Frykberg

The Reserve Bank thinks the rules protecting against this risk are not working as well as they should.

It fears an overly conservative interpretation of the rules is putting a handbrake on banks' daily business activities. 

The problem is an extension of recent changes that increased the amount of capital that banks must hold. This was intended to reduce the risk of banking failure, which has happened overseas and been calamitous for thousands of people.

But banks don't just face risks from their daily lending, but from the ancillary activities of people at the bank. This danger is known as connected persons exposure.

As an example, a connected person, such as a bank's owners, may have substantial outside interests such as loans, leases, deposits, equities or bonds. The RBNZ says a New Zealand bank could be severely affected by a failure of these investments.

But it says the rules to safeguard against this sort of collateral damage have been in place for 10 years without substantial change and need to be updated.

Moreover, the trading banks have complained of ambiguity and inconsistency in the way the policy is written. To make sure they don't get it wrong, banks are erring on the safe side, and interpreting the rules too conservatively.

This is constraining their ability to manage credit and market risks appropriately and efficiently. The RBNZ acknowledges that this problem exists and says they warrant a review of the rules.

However, it warns the essential principle of the policy is sound. It says safeguards for connected exposures remain an important part of overall prudential controls of the banking industry. Equally important are attestations by bank directors in relation to managing conflicts of interest.

However the RBNZ is proposing changes such as giving banks better access to risk mitigation, such as connected persons' abilities to draw on their own funds to offset a failure. It suggests the amount of money involved is huge, and could cause banks' overall risk exposure to vary enormously.

The views of the banking industry are being sought in respect of these proposals.

Tags: RBNZ

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Lender Flt 1yr 2yr 3yr
AIA 4.60 3.65 4.15 4.69
ANZ 4.79 4.25 4.95 5.35
ANZ Blueprint to Build 2.03 - - -
ANZ Special - 3.65 4.35 4.75
ASB Back My Build 2.29 - - -
ASB Bank 4.60 3.65 4.15 4.69
Avanti Finance 4.55 - - -
Basecorp Finance 5.49 - - -
Bluestone 4.09 4.29 4.86 5.09
BNZ - Classic - 3.65 4.35 4.69
BNZ - Mortgage One 5.15 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Rapid Repay 4.95 - - -
BNZ - Std, FlyBuys 4.95 4.25 4.95 5.29
BNZ - TotalMoney 4.95 - - -
CFML Loans 5.35 - - -
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.95 - - -
First Credit Union Special 5.85 3.59 4.09 -
Heartland Bank - Online 2.25 1.85 2.35 2.65
Heretaunga Building Society 5.25 4.25 4.75 -
HSBC Premier 4.49 2.19 2.45 2.69
Lender Flt 1yr 2yr 3yr
HSBC Premier LVR > 80% - - - -
HSBC Special - 2.25 - -
ICBC 4.25 3.49 4.05 4.55
Kainga Ora 4.60 4.03 4.68 5.07
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 4.25 4.54 5.20 5.54
Kiwibank - Offset 4.25 - - -
Kiwibank Special 4.25 3.69 4.35 4.69
Liberty 4.84 - - -
Nelson Building Society 4.95 4.29 4.85 -
Pepper Essential 4.79 - - -
Lender Flt 1yr 2yr 3yr
Resimac 3.39 3.54 3.89 4.09
SBS Bank 4.79 3.95 4.49 4.85
SBS Bank Special - 3.45 3.99 4.35
Select Home Loans 4.09 4.29 4.86 5.09
The Co-operative Bank - First Home Special - 3.45 - -
The Co-operative Bank - Owner Occ 4.75 3.65 4.35 4.69
The Co-operative Bank - Standard 4.75 4.15 4.85 5.19
TSB Bank 5.34 4.09 4.74 4.99
TSB Special 4.54 3.29 3.94 4.19
Unity 5.65 4.15 4.60 -
Wairarapa Building Society 4.99 4.05 4.50 -
Lender Flt 1yr 2yr 3yr
Westpac 5.09 4.29 4.95 5.29
Westpac - Offset 5.09 - - -
Westpac Special - 3.69 4.35 4.69
Median 4.77 3.69 4.42 4.69

Last updated: 19 January 2022 12:41pm

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