Swiss financial services company UBS expects the Reserve Bank to stand firm on its proposals for New Zealand banks to lift their capital adequacy levels.

UBS, in a critique of Reserve Bank deputy governor Geoff Bascand's speech this week, said it was "highly unlikely" that Reserve Bank would change its capital proposals.

Banks are currently required to hold at least 10.5 per cent of risk-weighted assets in different types of capital and central bank is proposing to lift that to 18 per cent.

UBS, in its analysis, discussed the commercial banks' options.

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It said capital repositioning by the mostly Australia-owned banks was possible, such as "upstreaming" New Zealand dividends then re-injecting the capital back into the local operations.

"Alternatively we believe the banks will look to (1) re-price; (2) ration credit; (3) undertake corporate/institutional business via Australia; (4) de-merge NZ subsidiaries," UBS said.

"We believe that each of these options is likely to have an economic impact on New Zealand which is larger than currently assumed by the Reserve Bank," UBS said.

In his speech, titled "Safer banks for greater well being" Bascand said increasing the amount of capital banks must hold would help to improve the safety of New Zealand's financial system and wellbeing.

"We are proposing to make New Zealand's banks safer by requiring them to use more of their own money to manage through good times and bad," Bascand said.

The central bank reiterated its view that with better capitalised and "safer" banks, shareholders, depositors and creditors would accept lower returns.

It also believes competitive pressures are likely to limit the ability of the banks to pass these higher costs on.

As a result the Reserve Bank estimates the increase in bank net interest margins resulting from the change was likely to be 20 to 40 basis points.

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UBS said the majority of costs arising from higher capital requirements were likely to be borne by mortgagors.

"We believe mortgagors and small to medium enterprises will again bear the brunt of this re-pricing," UBS said.

Even using the Reserve Bank's lower implied return on equity targets for the banks, New Zealand mortgage rates would need to rise by between 38 to 75 basis points.

"However, our analysis continues to estimate the banks will re-price mortgage books between 86 and 122 basis points," UBS said.

At a business breakfast in Auckland this week, Finance Minister Grant Robertson was asked about the likely impact the move might make small to medium sized businesses if higher interest rates result from it.

Robertson said decisions around capital adequacy were for the Reserve Bank.

"The bit that I'm focused on is making sure that we've got a banking system that is stable and safe but also effective in terms of its ability to fund small businesses, so that's the bit that i get to do - to look at the system as a whole."

In terms of the government's support for small business, Robertson said: "We will keep an eye on that for now and encourage people to engage in the consultation process," he said.

It's the second time UBS has weighed in on the Reserve Bank's proposals.

In January, UBS said the proposed capital ratio changes for New Zealand banks would make them among the highest in the world.

The Reserve Bank's consultation closes on May 3. The Reserve Bank will issue its final decisions in the third quarter of 2019.