July 5, 2018 / 11:24 PM / 9 months ago

New Zealand central bank tightens capital adequacy rules to tackle risk

FILE PHOTO: A security guard stands outside the main entrance to the Reserve Bank of New Zealand located in central Wellington, New Zealand, July 3, 2017. REUTERS/David Gray/File Photo

WELLINGTON (Reuters) - The Reserve Bank of New Zealand (RBNZ) said on Friday it will tighten rules on how banks calculate risk weighted assets to help insulate the financial sector from risk and bring the country into line with international standards.

New measures would be introduced to regulate the way in which banks calculate the value of their risk weighted assets, which will affect the amount of capital they must keep to safeguard themselves against shocks, the central bank said.

“We are ensuring that our capital requirement rules align with international standards while being fit for the New Zealand-specific context,” RBNZ governor Adrian Orr in a statement.

“All banks must have ‘enough skin in the game’ to truly focus on enterprise risk management, responsible lending, and the ability to weather all events.”

The changes are in line with international efforts, known as the Basel III rules, aimed at making the global banking system more resilient following the 2008 financial crisis. New Zealand has already adopted some of these rules, which force banks to hold more and different types of capital.

The latest changes included requiring banks to calculate their risk weighted assets using a standardized international approach, rather than relying on individual internal models.

“This will help shine light on whether the big banks’ risk estimates are appropriate,” Orr said.

The major banks in New Zealand are all owned by Australia’s “Big Four” - Commonwealth Bank of Australia (CBA.AX), Westpac Banking Corp (WBC.AX), Australia & New Zealand Banking Group(ANZ.AX) and National Australia Bank (NAB.AX).

Two further phases of the review were still underway, including the setting of minimum capital ratios.

Reporting by Charlotte Greenfield and Wayne Cole; editing by Richard Pullin

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