ANZ Bank says it may need to retain a higher proportion of its profits in New Zealand, as regulators on both sides of the Tasman take a tougher line on capital requirements, which are aimed at making banks more shock-proof.
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ANZ, which owns the largest bank in New Zealand, said it would be affected by an Australian Prudential Regulation Authority (APRA) policy announced on Tuesday to combat "contagion risk" within banks that have overseas operations.
Under APRA's new policy, the limit on Australian banks' exposure to related banks, such as subsidiaries, will be cut to 25 per cent of tier 1 capital, down from the current policy of 50 per cent of total capital.
In an announcement to investors, ANZ said its Kiwi business was large enough to be affected by this change, and the amount of capital tied up in NZ was "at or around" APRA's revised limit.
The consequence of that is that if the Reserve Bank of New Zealand raises its capital requirements on NZ banks, as flagged, this will affect ANZ's group-wide capital requirements.
Previously, ANZ may have been able to absorb the NZ capital changes without affecting its group-wide capital position.
"APRA's announcement today means, all else being equal, ANZ could have limited capacity to inject capital into ANZ NZ.
"As a result, ANZ NZ may be required to retain a higher proportion of its earnings to meet any potential increased capital requirements and any future capital required in New Zealand may also need to be held at a Group level," ANZ said in the announcement.
After opening slightly higher, ANZ shares dipped and were 0.4 per cent lower at $26.62 in late morning trading.
Bell Potter analyst TS Lim said the change from APRA would make it more difficult for ANZ to repatriate dividends across the Tasman, as it has done in the past.
Mr Lim said the changes may also prompt ANZ to manage returns in NZ more tightly, which could include streamlining the business or being more cautious.
"The question is what the RBNZ will do when they come up with their capital reforms," Mr Lim said.
ANZ said the overall impact of the various changes to capital rules would depend on the RBNZ's final ruling on capital requirements, and consultation between APRA and the RBNZ.
APRA's deputy chairman John Lonsdale said the changes APRA was making were aimed at stopping risks in one part of a bank - such as an overseas subsidiary - spreading more widely.
Mr Lonsdale said APRA had "limited visibility" over banks' overseas operations that were funded within the group as a whole.
"As we saw during the global financial crisis, deficiencies in governance or internal controls in one part of a corporate group can quickly spread and cause financial or reputational damage to an [authorised deposit-taking institution]" Mr Lonsdale said.
Mr Lonsdale said the change would have a "material impact" on some banks.
"We are open to considering appropriate transition arrangements on a case-by-case basis where specific entities request it," Mr Lonsdale said.
- SMH/The Age