There will be an economic impact from the bank capital changes announced by the Reserve Bank today, the industry body for the banks has warned.
After a year-long consultation, the banking regulator revealed its final decisions today in a move that will require the major banks to find an extra $20 billion over seven years.
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Starting from mid-2020, the banks which dominate the sector will have to increase their total capital to 18 per cent, from a minimum of 10.5 per cent now. Typically banks carry a buffer above the minimum of at least an additional 2 percentage points.
Smaller banks, including the likes of Kiwibank, TSB, Cooperative and SBS will need to have total capital of 16 per cent, up from what they hold now but below December's proposal.
Larger banks need to hold more capital than capital than their smaller rivals as if one were to fail it could have a severe impact on the economy.
Roger Beaumont, chief executive of the NZBA, welcomed the conclusion of the Reserve Bank's review.
"Today's announcement provides our banks with certainty on the amount and type of capital they will need to hold in future, and brings an end to a robust consultation."
Beaumont said the banks would now work constructively with the regulator to implement the new capital requirements.
"We are pleased the Reserve Bank has engaged with a wide range of stakeholders and made some changes to its original proposal. In particular, we acknowledge the longer implementation timeframe of seven years instead of five, which commences in July 2020.
"We're also pleased to see a recognition of the differences between the larger and the smaller banks."
But his statement also came with a warning.
"Today's announcement will have an economic impact and each bank will now consider the implications for their business and customers, and will be developing their own commercial response."
During the consultation period, the NZBA cited an economic review which said lifting the capital requirements would have economic welfare costs of $1.8 billion a year and that it would disproportionately affect agricultural, small business lending, and savers.
Beaumont said the banks would continue to work closely with the Reserve Bank on the detail of today's decisions to ensure a smooth implementation.
"We support a strong and stable banking system that can withstand significant shocks.
"We also acknowledge the Reserve Bank for encouraging a valuable public debate on this issue and for responding to feedback," he added.
The banks are now mulling over the changes.
ANZ New Zealand Acting chief executive Antonia Watson said it welcomed the conclusion of the review.
"While the increase in capital remains significant, we acknowledge that as a result of the consultation process there have been changes to the capital instruments and the transition period to the new regime.
"We agree with the RBNZ that having a sound and efficient financial system is critical to the economic well-being of all Kiwis - the debate was always about how far that went and how that cost would be shared."
Watson said any changes would be implemented gradually, bearing in mind the market was competitive for lending.
The bank had already started preparing for the change which comes into force from July next year.
Of ANZ NZ's $1.8 billion net profit after tax this year around 80 per cent had been kept in New Zealand as retained earnings in response to the proposals.
ASB chief executive Vittoria Shortt said today's announcement provided certainty around the levels of capital required to be held by banks.
"The Reserve Bank has released a number of comprehensive documents as part of the decision. We will take our time to thoroughly review the final recommendations in detail and develop implementation plans to meet the new capital requirements over the transition period.
"We will be focused on working with our customers to ensure they are informed and supported as the transition occurs."
A Westpac New Zealand spokesman said it welcomed the RBNZ's extension of the timeframe for the new capital requirements from five to seven years.
"We are confident we can meet these requirements and are committed to supporting our customers and the economy through these changes."
But it said the final decisions represent a major change to its capital and will have an impact on its business and customers.
"We'll be working through that impact in the coming days and weeks with the aim of minimising disruption for our customers and business."
A BNZ spokesman said: "We are working through the new Reserve Bank capital framework and assessing the implications."