UBS: RBNZ capital requirements slam into Aussie banks

New Zealand may not have had a royal commission but it knows what it is doing when it comes to reckless Aussie banks. Via the excellent Jonathon Mott at UBS:

Reserve Bank of New Zealand capital requirements larger than prior estimates

Recent speeches and publications by the RBNZ suggest it remains fully committed to its Bank Capital proposals. While the RBNZ is still in its consultation phase (until 3 May) and its final decision is not expected until September, we do not anticipate material concessions. Further, we now believe there is limited capacity for the banks to utilise the proposed 1.5% of AT1 allowable (perpetual non-redeemable preference shares) and that banks are likely to maintain ~1% buffer over 16% minimum Tier 1. This implies the New Zealand banks would need to run CET1 ratios of ~17%, well above our prior estimates of 14.5% (which included AT1 and no buffer) and leaves a FY23E capital shortfall of ~NZ$21bn rather than the ~NZ$15bn we previously estimated.

Mott sees this disrupting further buybacks in Australia, leaving NAB in particular short of capital next year, and out-of-cycle rate hikes raining down upon NZ mortgages.

David Llewellyn-Smith

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