WELLINGTON, Dec 5 (Reuters) - New Zealand’s central bank on Thursday announced it would go ahead with plans to increase capital requirements for banks, but offered more time for the lenders to make the changes than originally proposed.
The country’s top four Australian-owned banks will have to raise their total capital to 18% from a minimum of 10.5% now, while the remaining smaller banks will have to raise it to 16%, the Reserve Bank of New Zealand (RBNZ) said in a statement.
The average level of capital currently held by banks is 14.1%, the bank said.
The decision will take effect from July 2020 but the time frame to meet the requirements was increased to seven years from the previously proposed five years, the RBNZ said.
The RBNZ also offered more flexibility to banks on the use of specific capital instruments. “Our decisions are not just about dollars and cents,” said RBNZ Governor Adrian Orr.
“More capital in the banking system better enables banks to weather economic volatility and maintain good, long-term, customer outcomes,” he said.
High-quality tier 1 deposits for the top four banks would now need to be 16% up from the current requirement of 8.5%.
These banks already hold an average of 13.2% in tier 1 capital.
Smaller banks would have to increase their tier 1 capital to 14%. (Reporting by Charlotte Greenfield and Praveen Menon)