World’s toughest capital requirements in New Zealand may squeeze credit
New Zealand is planning some of the toughest bank capital standards worldwide to ensure lenders can weather a downturn. The risk is that the caution may squeeze access to credit.
The nation’s four largest lenders will have to hold capital equal to at least 18% of risk-weighted assets by the end of a seven-year period that starts in July 2022. The smaller banks will need a minimum capital of 16%, which is double that of European lenders and significantly higher than in Australia. The current minimum regulatory capital required for all New Zealand banks is 10.5%.
Meeting the high requirements will likely force New Zealand banks to cut riskier exposure, such as loans to smaller businesses, and require billions of dollars in extra funding. The nation’s four biggest banks, units of Australian majors — Australia and New Zealand Banking Group Ltd., Commonwealth Bank of Australia,…