Review could tighten loan market

The Reserve Bank is currently taking submissions on its issues paper, reviewing the requirements placed on banks in this country.

It said, in a changing international regulatory environment, where other countries were placing higher requirements on their banks, it was less clear whether New Zealand’s position on bank capital was being maintained relative to Australia and other countries.

Australia has recently tightened its rules. Some Australian parents have required money to be sent across the Tasman from their New Zealand subsidiaries as a result.

Forsyth Barr said if more prudent settings were imposed here, which looked likely, it could tighten credit availability.  The banks' lending clampdown was already holding back construction intentions, it said.

Massey University banking expert Claire Matthews agreed increased requirements could reduce banks' ability to lend.

“They will only be able to lend if they have the capital to cover that.”

But she said banks already had a buffer to ensure they were well clear of regulatory requirements.

It was unlikely that the new capital requirement would be higher than the capital levels banks already held. Any change was most likely to relate to bank efforts to increase their buffers again.

“They would then build up the buffer again to have the certainty not to go below it. It would restrict lending to some extent for a while and make it more expensive because if they are holding more capital it’s more expensive to provide loans."

The NZ Bankers Association said it could not comment on the outcome of the review at this stage.

Submissions on the issues paper close on June 9.