New Zealand Needs to Assess Risk Weights Used by Banks, ANZ Says

(Bloomberg) -- New Zealand needs to assess the risk weights that banks are required to apply to lending to ensure they are not too conservative compared to other nations, according to ANZ Bank New Zealand Ltd.

“If I had a magic wand, I would ask the government and regulators just to take a step back and look at our risk weightings on an internationally comparable basis,” New Zealand Chief Executive Officer Antonia Watson told a parliament select committee Monday in Wellington.

Watson, who runs the country’s largest lender, is among bank bosses speaking to the committee as part of its inquiry into banking competition. The spotlight on prudential settings for the industry comes as Finance Minister Nicola Willis revealed she is taking advice on the amount of capital banks hold and follows the unexpected resignation of Adrian Orr — who championed the rules when they were introduced — as Reserve Bank governor last week.

“Our overall capital ratio is our capital divided by our risk weighted assets,” Watson told the committee. “As well as having conservatism compared to other countries in our capital, we have conservatism in our risk weighted assets.” 

She said decision makers need to assess how much prudential risk it wants banks to take compared to allowing more competition.

When the RBNZ made its decision on new capital rules in 2019 it said it wanted to make banks resilient to shocks that might occur once in every two hundred years. The new requirements, which were introduced in mid-2022 and are being progressively imposed over seven years, have pushed up borrowing costs.

“We’ve chosen a one-in-200 year event,” Watson told the committee. “Is that the level of financial stability we want? That’s not a question for us. It’s a question for you and our regulators.”

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