Capital rules about to hit

The government is close to signing off on new tougher capital requirements for the non-bank deposit-taking (NBDT) sector that could force some institutions to raise significant amounts of fresh equity.

Thursday, 21 May 2009

by David Chaplin

It is understood the draft regulations and recommendations from the Reserve Bank of New Zealand (RBNZ) regarding NBDT capital requirements have almost been finalised and should be in place by late June or early July.

Under the proposals released last December NBDTs would be required to keep a minimum tier one capital level of 8%, or 10% if they were not rated by one of the three approved ratings agencies, Moodys, Fitch and Standard & Poor's.

A spokesperson for the RBNZ said the government received about 40 submissions on the NBDT proposals with three key themes emerging: concerns about the tier one capital requirements; what the transition path would be, and; a desire to see the risk weightings of the NBDT sector match those applied to regular banks.

The spokesperson said a roadshow was planned to start in the next two to three weeks to explain the details of the new regulations and the "economic rationale" to interested parties.

In its December 2008 discussion paper the RBNZ said the new NBDT regulations were designed to ensure "depositors are provided with enough information to distinguish between low-risk and high-risk deposit takers; and the need to avoid unnecessary compliance costs". 

Justin Kerr, head of the Financial Services Federation (FSF), said the group, which represents about 40 NBDTs, was still in discussions with government regarding details of the proposed regulations.

Kerr said while the NBDT sector recognised the need to lift prudential capital requirements it was still not clear "how severe" the new rules would be.

He also said the industry had asked the government to ensure that the risk ratings applied to NBDTs  reflected "real risks and were not excessively pessimistic".

"There has been genuine consultation," Kerr said. "There should be some changes [from the original NBDT proposals]."

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