Capital ratios changes ‘could hurt NZ’

ANZ group chief executive Shayne Elliott has threatened to review the “size, nature and operations” of the New Zealand business if the Reserve Bank implements its proposed changes to capital ratios, according to his submission released publicly yesterday.

The capital changes would see ANZ Group reduce investment and reallocate resources away from New Zealand to more profitable businesses, Elliott says.

“This may also lead the New Zealand business to reduce operational costs (including employee costs).”

It may also require ANZ Group to “dispose, or cease operation, of the relevant underperforming New Zealand assets or businesses”.

Another possibility was that some customer relationships in New Zealand could be directly managed out of Australia, he says.

The Reserve Bank is proposing a lift in the amount of risk weighted capital retail banks hold, from 8.5 per cent to 16 per cent.

Submissions on the proposal were released publicly today.

In total 161 were received including responses from the major banks, large companies like Fonterra, business and social organisations and numerous individuals.

All four major banks — ANZ, Westpac, BNZ and ASB — oppose the proposals in their current form and warn they will mean higher interest rates for borrowers, lower rates for savers and lower levels of GDP growth for the nation.

BNZ said it would need to raise equity if the proposals went ahead and that it may not be able to rely on its parent National Australia Bank (NAB) for ongoing support.

In a separate submission NAB said the increased capital requirements would make it challenging to continue with its current levels of support for the BNZ.

“In the absence of parental support, BNZ’s credit rating would likely be several notches lower resulting in higher funding costs being passed on to consumers.”

New Zealand’s largest bank, ANZ is currently in the spotlight for the untimely departure of its chief executive and for breaching current capital rules.

ANZ, through New Zealand chairman John Key and Australian group chief executive Elliott also made separate submissions to the Reserve Bank.

In his submission, which includes extensive modelling of the proposals, Key warned of a 1-3 per cent hit to GDP over 10 years, high lending cost and a significant risk to the dairy sector.