16 Oct 2019

Big banks cop capital changes on both sides of Tasman

10:21 am on 16 October 2019

A move by Australia's financial regulator could be enough to turn the big banks' threat to ditch New Zealand into a reality - or at least see them charge customers more.

National Bank of Australia, ANZ, Commonwealth Bank, Westpac.

National Bank of Australia, ANZ, Commonwealth Bank, Westpac. Photo: 123RF

The Australian Prudential Regulatory Authority (APRA) was considering making the Australian banks increase the capital they hold for large assets, such as their New Zealand businesses, while considering a drop in the capital they must hold for smaller businesses.

The APRA proposal was made in discussion with the Reserve Bank of New Zealand, which was considering almost doubling capital requirements for banks that operated here.

"Both APRA and the RBNZ will continue to maintain an open dialogue as we work to strengthen the resilience of our respective financial systems and protect the interests of depositors in each country," APRA deputy chair John Lonsdale said.

"These proposed measures seek to support the resilience of the major banks' Australian operations."

Dr Claire Matthews of Massey University said it seemed regulators were doubling-down on Australian banks.

"What RBNZ and APRA are both concerned about is protecting depositors in their country, to make sure that they do not lose money," Ms Matthews said.

APRA's move could make Australian banks reduce the size of their New Zealand subsidiaries, or increase local borrowing costs.

"They may be happy to continue their investment, but they may put costs up so they get the return that they require," she said.

An RBNZ spokesperson said APRA's proposal was a result of its initial move on capital requirements.

"The RBNZ's proposals and APRA's processes are a natural by-product of both regulators working to protect their respective communities from the costs of financial instability," the spokesperson said.

"New Zealand banks have several options to meet our proposals, e.g. retaining earnings, issuing capital at the parent level, issuing capital to outside shareholders, that are unaffected by changes to APRA rules."

ANZ Banking Group said in a market announcement that it was reviewing what impact APRA's proposal would have on its investments, but confirmed it would negatively impact its New Zealand bank.

"The discussion paper provides a capital benefit for investments in small subsidiaries, e.g. China, Indonesia, Papua New Guinea and Thailand, but has a negative impact for large subsidiaries, i.e. New Zealand," the statement said.

"The net impact on the Group is unclear and will depend upon a number of factors including the capitalisation of all its subsidiaries at the time of implementation, the final form of the prudential standard, as well as the effect of management actions being pursued that have the potential to materially offset the impact of these proposals."

ANZ Australia chief executive Shayne Elliott said in a submission to the RBNZ earlier this year, it would reconsider its operations in New Zealand if the proposed capital requirements went ahead.

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