Is New Zealand Easing Bank Capital Rules Without Compromising Stability?
Source: Kapitales Research
Highlights:
The Reserve Bank of New Zealand will ease bank capital rules, cutting CET1 requirements for large banks to 12% from 16%, while keeping standards above global norms.
Tier 2 capital and internal loss-absorbing capacity requirements will increase, maintaining a strong buffer for financial stability.
At the time of writing, the RBNZ estimates the changes will lower funding costs by about 12 basis points and deliver an annual economic benefit of 0.12% of GDP.
New Zealand’s central bank has moved to ease some capital requirements for banks after a formal review, aiming to strike a balance between financial stability and economic growth while still keeping rules tougher than global minimums.
RBNZ Adjusts Long-Term Capital Settings
The Reserve Bank of New Zealand (RBNZ) announced it would lower certain capital thresholds introduced in 2019, following criticism that the original framework was increasing borrowing costs and putting pressure on the economy. At the time of writing, the central bank emphasised that the revised settings remain conservative by international standards, despite the easing.
Under the changes, the country’s four largest Australian-owned banks will now be required to hold common equity tier 1 (CET1) capital of 12 per cent, down from the previously planned 16 per cent.
Higher Buffers in Other Areas
While CET1 requirements are being reduced, other buffers will rise. Tier 2 capital requirements will increase to 3 per cent from 2 per cent, and large banks will also need to hold internal loss-absorbing capacity (ILAC) of 6 per cent, according to documentation released alongside the announcement.
For smaller banks, total capital requirements will fall to 14 per cent from 16 per cent, with the RBNZ noting that these settings still sit above many international peers.
Economic Impact in Focus
At the time of writing, the RBNZ estimates the revised framework will lower average bank funding costs by around 12 basis points and deliver an annual net benefit equivalent to 0.12 per cent of New Zealand’s GDP, compared with fully implementing the earlier rules.
Big Banks Remain Central
New Zealand’s banking landscape is largely controlled by four big Australian-owned lenders: Westpac, ASB Bank (part of Commonwealth Bank of Australia), Bank of New Zealand (owned by National Australia Bank), and ANZ New Zealand. The changes mark a significant policy shift, signalling a softer stance without abandoning the central bank’s focus on resilience.
Disclaimer for Kapitales Research
The materials provided by Kapitales Research, including articles, news, data, reports, opinions, images, charts, and videos ("Content"), are intended for personal, non-commercial use only. The primary goal of this Content is to educate and inform readers. This Content is not meant to offer financial advice, nor does it include any recommendation or opinion that should be relied upon for making financial decisions. Certain Content on this platform may be sponsored or unsponsored, but it does not serve as a solicitation or endorsement to buy, sell, or hold any securities, nor does it encourage any specific investment activities. Kapitales Research is not authorized to provide investment advice, and we strongly advise users to seek guidance from a qualified financial professional, such as a financial advisor or stockbroker, before making any investment choices. Kapitales Research disclaims all liability for any direct, indirect, incidental, or consequential damages arising from the use of the Content, which is provided without any warranties. The opinions expressed by contributors or guests are their own and do not necessarily reflect the views of Kapitales Research. Media such as images or music used on this platform are either owned by Kapitales Research, sourced through paid subscriptions, or believed to be in the public domain. We have made reasonable efforts to credit sources where appropriate. Kapitales Research does not claim ownership of any third-party media unless explicitly stated otherwise.
Customer Notice:
Nextgen Global Services Pty Ltd trading as Kapitales Research (ABN 89 652 632 561) is a Corporate Authorised Representative (CAR No. 1293674) of Enva Australia Pty Ltd (AFSL 424494). The information contained in this website is general information only. Any advice is general advice only. No consideration has been given or will be given to the individual investment objectives, financial situation or needs of any particular person. The decision to invest or trade and the method selected is a personal decision and involves an inherent level of risk, and you must undertake your own investigations and obtain your own advice regarding the suitability of this product for your circumstances. Please be aware that all trading activity is subject to both profit & loss and may not be suitable for you. The past performance of this product is not and should not be taken as an indication of future performance.
Kapitales Research, Level 13, Suite 1A, 465 Victoria Ave, Chatswood, NSW 2067, Australia | 1800 005 780 | info@kapitales.com.au
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Is New Zealand Easing Bank Capital Rules Without Compromising Stability?
Highlights:
New Zealand’s central bank has moved to ease some capital requirements for banks after a formal review, aiming to strike a balance between financial stability and economic growth while still keeping rules tougher than global minimums.
RBNZ Adjusts Long-Term Capital Settings
The Reserve Bank of New Zealand (RBNZ) announced it would lower certain capital thresholds introduced in 2019, following criticism that the original framework was increasing borrowing costs and putting pressure on the economy. At the time of writing, the central bank emphasised that the revised settings remain conservative by international standards, despite the easing.
Under the changes, the country’s four largest Australian-owned banks will now be required to hold common equity tier 1 (CET1) capital of 12 per cent, down from the previously planned 16 per cent.
Higher Buffers in Other Areas
While CET1 requirements are being reduced, other buffers will rise. Tier 2 capital requirements will increase to 3 per cent from 2 per cent, and large banks will also need to hold internal loss-absorbing capacity (ILAC) of 6 per cent, according to documentation released alongside the announcement.
For smaller banks, total capital requirements will fall to 14 per cent from 16 per cent, with the RBNZ noting that these settings still sit above many international peers.
Economic Impact in Focus
At the time of writing, the RBNZ estimates the revised framework will lower average bank funding costs by around 12 basis points and deliver an annual net benefit equivalent to 0.12 per cent of New Zealand’s GDP, compared with fully implementing the earlier rules.
Big Banks Remain Central
New Zealand’s banking landscape is largely controlled by four big Australian-owned lenders: Westpac, ASB Bank (part of Commonwealth Bank of Australia), Bank of New Zealand (owned by National Australia Bank), and ANZ New Zealand. The changes mark a significant policy shift, signalling a softer stance without abandoning the central bank’s focus on resilience.
Disclaimer for Kapitales Research
The materials provided by Kapitales Research, including articles, news, data, reports, opinions, images, charts, and videos ("Content"), are intended for personal, non-commercial use only. The primary goal of this Content is to educate and inform readers. This Content is not meant to offer financial advice, nor does it include any recommendation or opinion that should be relied upon for making financial decisions. Certain Content on this platform may be sponsored or unsponsored, but it does not serve as a solicitation or endorsement to buy, sell, or hold any securities, nor does it encourage any specific investment activities. Kapitales Research is not authorized to provide investment advice, and we strongly advise users to seek guidance from a qualified financial professional, such as a financial advisor or stockbroker, before making any investment choices. Kapitales Research disclaims all liability for any direct, indirect, incidental, or consequential damages arising from the use of the Content, which is provided without any warranties. The opinions expressed by contributors or guests are their own and do not necessarily reflect the views of Kapitales Research. Media such as images or music used on this platform are either owned by Kapitales Research, sourced through paid subscriptions, or believed to be in the public domain. We have made reasonable efforts to credit sources where appropriate. Kapitales Research does not claim ownership of any third-party media unless explicitly stated otherwise.
Customer Notice:
Nextgen Global Services Pty Ltd trading as Kapitales Research (ABN 89 652 632 561) is a Corporate Authorised Representative (CAR No. 1293674) of Enva Australia Pty Ltd (AFSL 424494). The information contained in this website is general information only. Any advice is general advice only. No consideration has been given or will be given to the individual investment objectives, financial situation or needs of any particular person. The decision to invest or trade and the method selected is a personal decision and involves an inherent level of risk, and you must undertake your own investigations and obtain your own advice regarding the suitability of this product for your circumstances. Please be aware that all trading activity is subject to both profit & loss and may not be suitable for you. The past performance of this product is not and should not be taken as an indication of future performance.
Kapitales Research, Level 13, Suite 1A, 465 Victoria Ave, Chatswood, NSW 2067, Australia | 1800 005 780 | info@kapitales.com.au