Might be able to reallocate / transfer some of equity allocated to the non-banking group to the banking group to shore up the banking group (or some other financial engineering) — sneaky eh
Printable View
It’s going to take years before anything needs to be done ..that 15% mentioned is by 2025 or something
No worries
What the RBNZ is talking about
https://www.rbnz.govt.nz/-/media/Res...ough.pdf?la=en
This looks to be the roading equivalent of saying - lets avoid crashes and decrease the speed limit. If we set the open road speed limit at 60 kph, there will be a lot less fatal crashes so let forget 90, 80 and go straight down to 60.
This would be great at achieving this single objective (assuming adherence to the rules). It would create incredible operational inefficiencies relative to previous settings.
So if you need up to 60% more capital to do the same lending, if no additional capital is contributed, lending needs to reduce by 37.5%.
All of this additional capital that is soaked up in the higher "safety" threshold hasn't been made available to residental and commercial customers
If your lending has to reduce by 37.5%, there would need to be quite an expansion of margins so that this reduced activity level didn't cause profitability to drop
The more capital that is needed, the harder it is to finance growth.
Also unless RBNZ were to relax their buffer requirements should banks post losses, banks would need to operate above this new threshold. This potentially means that we could have the strange combination of a severe credit crunch (which is just what RBNZ are trying to avoid) when banks are actually pretty sound on international benchmarks.
There looks to be some pretty big down-side risks to NZ inc from this decision (if it progresses in its current form).
Of cource its just coincidence that RBNZ want to increase the financial Capital requirements?? ... After they arguably had a decent (negative?) role to play in the capital reserves needed for CBL and the events that followed..
NZRB hands got burnt.. So best make a much larger buffer do rerisk themselves vs really derisking the banking big 4.. Who by accounts have decent ratios v international benchmarks....
.. And sigh, I bought decent amount of WBC last week.. Thinking its at its lows and on the up after their Aus AGM and mea culpa seemed well received.