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Westpac, BNZ mixed reaction to RBNZ policy

NZN 8/05/2017 Paul McBeth

Westpac and Bank of New Zealand are relatively sanguine about the need for the Reserve Bank's review of required capital levels to boost confidence in the solvency of the banking system.

But they see the regulator's planned outsourcing policy as simply adding unnecessary costs.

The local units of ANZ Group, Westpac Banking Corp and National Australia Bank had total quality capital ratios of 13.8 per cent, 12.8 per cent and 13.3 per cent respectively, comfortably above the Reserve Bank's 10.5 per cent minimum, which includes a buffer.

Three of Australia's four-pillar banks reported first-half earnings over the past week, all of which saw stronger asset quality as a result of the dairy sector's recovery through the tail end of last year.

Westpac New Zealand chief executive David McLean said his bank's asset quality had probably never been stronger since the turnaround in the dairy sector, which makes it harder to see where issues would crop up.

"When times are really good and all the asset classes are performing very well, that's when I think you should be really worried because it's harder to see problem loans because everything looks good," Mr McLean told BusinessDesk.

The Reserve Bank is taking another look at the current capital adequacy settings as lenders around the world face growing demands to preserve their solvency since the global financial crisis crippled much of the system almost a decade ago.

New Zealand and Australia were somewhat insulated from the global credit crunch due to their domestic focus.

Mr McLean said the global trend was for rising regulation "driven by the failure of the banking system to deal with a lot of the issues, particularly in Europe and the US", and while New Zealand's economy was small and exposed to the rest of the world, the Australian ownership of much of the system provided strong support.

BNZ chief Anthony Healy said he was supportive of the capital review.

"We have very strong capital levels and we're continuing to build them because our expectation is that globally, capital levels and expectations of capital levels are going up," Healy said.

However, both bank CEOs have concerns about the prospective costs they each face if the Reserve Bank goes ahead with its planned outsourcing rules, which would define what functions lenders have to operate internally.

The new rules for outsourcing are integral to the RBNZ's open bank resolution policy, designed to ensure an orderly management when a lender collapses because third-party arrangements could undermine the efficacy of the regime.

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