WELLINGTON (Reuters) -New Zealand’s central bank said on Monday it would undertake an evidence-based review of its capital regime this year, assessing it against the settings in other countries in a bid to boost competition in the banking sector.
“We have heard the claims that our bank capital regime is unreasonably conservative, and that it is undermining competition and growth in the New Zealand economy,” Reserve Bank of New Zealand (RBNZ) Acting Governor Christian Hawkesby told a parliamentary committee.
“We think that some of those claims are incorrect, but most of the claims can be tested empirically.”
Hawkesby said the New Zealand banking system is not capital constrained as it had the ability to raise capital if it saw opportunities.
New Zealand’s government in August 2024 promised a shake-up of consumer banking after the New Zealand Commerce Commission said the sector lacked competition and suggested improvements to increase state-owned Kiwibank’s capital.
The country’s four largest lenders, all owned by Australian banks, do not face strong competition in the personal banking sector, the competition watchdog had said in its report.
Finance Minister Nicola Willis welcomed the RBNZ’s decision, and said the review would help objectively assess New Zealand’s settings and consider whether the RBNZ’s intention to keep increasing capital requirements still made sense.
“I want to see settings that preserve financial stability while encouraging investment, job creation and income growth,” Willis said in a statement.
“Submitters have argued that other countries have less onerous bank capital requirements and that New Zealand is becoming an outlier internationally.”
The big banks are currently required to maintain a minimum capital of 13.5% and the smaller ones 11.5%, with the RBNZ earlier indicating those requirements could be raised by 2028.
RBNZ Chair Neil Quigley said the bank needed to go through a process that demonstrated both intellectual and practical integrity to change its position on any regulatory matter.
“The bank cannot act arbitrarily,” Quigley said.
He said the RBNZ, which is currently searching for a replacement for the governor after the surprise exit of Adrian Orr this month, will “relatively soon” start its search process.
But it could take up to nine months to name the new governor, Quigley added.
(Reporting by Lucy Craymer in Wellington and Renju Jose in Sydney; Editing by Bill Berkrot and Aurora Ellis)
By Lucy Craymer and Renju Jose
