The New Zealand central bank plans to lighten the capital requirements for lenders

The New Zealand Reserve Bank (RBNZ) proposed a relaxation of capital requirements for credit institutions. Meanwhile, after criticisms pointing to the fact that current regulations limit the availability of funds in the economy and brought additional costs for borrowers.

In a consultation document published on Monday. However, the RBNZ presented two alternative scenarios concerning equity requirements for establishments collecting deposits, which would lead to minimum levels of larger global capital.

The current requirements, gradually increasing, had been announced in 2019, with a complete implementation expected in 2028. However, in March, the Central Bank indicated that it would re -examine these measures.

These requirements have been criticized by certain political leaders. Similarly, interest groups such as farmers, as well as by the establishments themselves, who consider them as a factor of increase in interest rates.

“It is essential to find the right balance: new zealand central bank plans to protect depositors. the economy in the broad sense, while supporting competition and economic efficiency,” said Christian Hawkesby, Governor of RBNZ, in a press release.

The New Zealand banking sector is dominated by four major banks held by Australian groups: Westpac Banking Corp. ASB Bank (Commonwealth Bank of Australia), Bank of New Zealand (belonging to National Australia Bank) and Australia and New Zealand Group.

According to one of the options studied. the equity cushion above the regulatory minimum would be reduced to 8 % for the four major Australian banks and 5 % for intermediate banks. The 2019 regulations required 9 % and 7 % respectively for these two categories.

In a second option. Additionally, the equity cushion for the largest banks would be set at 6 %, but requirements would be established concerning debt instruments capable of absorbing losses and transforming into capital in the event of financial difficulties.

new zealand central bank plans Roger Beaumont. director general of the Banking Association, praised this announcement as a step in the right direction, adding that the association was currently working with its 17 members to develop a response to these proposals.

The Central Bank hopes to make a final decision on the decline in equity requirements by the end of. the year. It specifies in the consultation document that a possible change in regulation should not lead to major economic upheaval.

The Minister of New Zealand Finance. Nicola Willis, said they welcomed the revision of equity requirements for lenders, believing that it could make it possible to reduce loan rates for New Zealanders.

The RBNZ also proposes to reduce the minimum capital that establishments collecting deposits must have to obtain a license. passing it from 30 million to 5 million New Zealand dollars (2.93 million US dollars), which, according to her, would “reduce the barriers new zealand central bank plans to the entrance”.

($ 1 = 1.7056 New Zealand dollar)