RBNZ's final decision on banks' capital requirements supports financials & Kiwi

  • RBNZ fives banks seven years to increase capital buffers.
  • The decision will take effect from July 2020.
  • Commonwealth Bank which shares rose 1.4%, National Australia Bank shares rise 1.4% and Westpac shares rise 0.6%.
  • RBNZ's Orr: We're in a 'hold phase' in monetary policy.

The Reserve Bank of New Zealand today announced its final decision on banks' capital requirements. The decision has appeared to have been the cause for a sudden spike in the Kiwi, regardless of the negative implications for Gross Domestic Product. the move could even be considered being more of a defensive move which would be arguably bearish for the Kiwi considering the undertones of a weak economy requiring such capital control adjustments.

"New Zealand's banks will be required to hold substantially more capital over the coming years, which is likely to result in wider bank margins and a lower level of economic activity,"

analysts at Westpac said. 

Nontheless, it is a relief for the financials, such as Commonwealth Bank which shares rose 1.4% after the release of the new capital requirements - (National Australia Bank shares rise 1.4% and Westpac shares rise 0.6%). "The overall decision is in line with its previous proposals to increase the overall amount of bank equity, but some aspects are softer," analysts at ANZ Bank explained, adding ...

The total required level of Tier-1 capital for the major banks will be 16%, as proposed, but the transition period has been extended to seven years (from five). Importantly, the definition and amount of allowable Tier-1 capital has been expanded from the original proposals.

Meanwhile, the decision will take effect from July 2020. 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. 

RBNZ outlook

The analysts at ANZ Bank continue to see a lower OCR in time and said these changes will contribute to that, though less than previously expected.

A softening of the proposals, combined with a more positive domestic outlook (and in particular upside to government infrastructure spending), mean we are changing our OCR call to only one further 25bp OCR cut in May next year, taking the OCR to 0.75%. We will review once we have more detail in the fiscal update next week.

Impact on the economy

The RBNZ suggests the impact on the economy will be negligible, with an impact of around 20bps on lending rates. "We expect a larger impact on both retail interest rates (30-60bp, spread unevenly by sector and subject to considerable uncertainty) and credit availability than the RBNZ does, and therefore more of a negative impact on GDP," the analysts argued. "However, any impact will be difficult to separately identify, since it will occur over a long time period where many other offsetting forces will be at play."

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Feed news

FXStreet Trading Signals now available!

Access to real-time signals, community and guidance now!

Latest Forex News

Latest Forex News

Editors’ Picks

EUR/USD accelerates decline and nears 1.1200

The US Nonfarm Payroll report’s effects are long gone. The greenback gets attention as stocks eased sharply from intraday highs, still holding in the green, yet undermined by record coronavirus cases in the US.


AUD/USD hovering around 0.6920 after a dull day

AUD/USD pair seesawed between gains and losses, settling for a second consecutive day at around 0.6920. Australian PMIs and Chinese services output coming up next.


Gold: Bears seeking justice below key support

XAU/USD has been a mixed bag this week and for the start of the month, trapping bears ina recent stop hunt from the $1,757.66 level where it met a high of $1,779.69 on the last session before the US long weekend. 

Gold News

Crypto collapse with Bitcoin falling below $9,000 and Ethereum getting close to $220

Most cryptocurrencies are experiencing a significant sell-off after Bitcoin fell below $9,000. BNB/USD has suffered the most with a 4% drop towards $15 and needs to hold $14.8 support. 

Read more

Oil: $40 per barrel has been broken again but there is a lack of conviction at these current levels

WTI has continued to move higher on Thursday but the price action seems pretty lacklustre despite volatility elsewhere. There have been some decent news stories in the past few sessions as it was confirmed OPEC output reached a two-decade low after over compliance from Saudi Arabia. 

Oil News