Big four banks face $14b capital slug from across the Tasman


The concessions to the big four, which have lobbied against the proposal since it was flagged a year ago, caused the lenders’ share prices to post solid gains on Thursday. Even so, analysts said the tougher requirements would likely act as another “headwind” for returns, alongside a weak economy, stiff competition and high compliance costs.

Jefferies’ banking analyst Brian Johnson said the tougher capital rules in NZ needed to be seen alongside a change in Australian regulations that limits how much capital Australian lenders can have tied up overseas. “It’s another dividend servicing headwind,” Mr Johnson said.

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Morningstar analyst Nathan Zaia said the banks could shrink their commercial loan books in NZ as a result of the changes, which would act as a “slight drag” on group-wide return on equity.

Shaw and Partners banking analyst Brett Le Mesurier said the banks were likely to respond to the changes by retaining a higher share of the profits made across the Tasman in their NZ businesses.

“They will need more capital to make a similar profit,” he said.

He said the “most probable” result of the changes would be that the Australian banks would grow more slowly in New Zealand. Dividends would only be at risk if the banks were growing quickly in the market, which he said was unlikely.

Chief investment officer at Atlas Funds Management, Hugh Dive, said the changes were “relatively manageable” for the banks, as a result of the extended transition time and the inclusion of other types of capital, aside from equity.

“Basically, the bark was much worse than the bite,” Mr Dive said.

UBS analyst Jonathan Mott said the RBNZ’s decision eased one of the headwinds facing banks, describing the ruling as a “modest ‘win’ for the banks in a very challenging environment.”

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Westpac shares rose 1.21 per cent to $24.33, Commonwealth Bank shares lifted 1.04 per cent to $78.62, National Australia Bank shares surged 2.05 per cent to $25.41 and ANZ Bank shares surged 2.11 per cent to $24.70.

The RBNZ’s governor, Adrian Orr, said the changes were aimed at protecting the economy from financial crisis, pointing to “financial and well-being” impacts on the people of New Zealand.

“Our decisions are not just about dollars and cents. More capital in the banking system better enables banks to weather economic volatility and maintain good long-term customer outcomes,” Mr Orr said.

Of the new capital to be held in the NZ banking system, $NZ11 billion will be common equity, and the remaining $NZ9 billion will be redeemable preference shares, he said.

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