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National Australia Bank RBNZ ask represents $2.7-3.4bn capital increase

SYDNEY: National Australia Bank Ltd (NAB) on Monday flagged a potential Tier 1 capital increase of about NZ$4 billion to

Dec 17 2018

SYDNEY: National Australia Bank Ltd (NAB) on Monday flagged a potential Tier 1 capital increase of about NZ$4 billion to NZ$5 billion ($2.7-$3.4 billion) for subsidiary Bank of New Zealand, after New Zealand's central bank proposed to almost double capital requirements for banks.

The Reserve Bank of New Zealand (RBNZ) said on Friday it was considering almost doubling the required capital banks would need to hold to bolster the financial system's capacity to handle any shocks.

The RBNZ posited that the New Zealand units of Australia's four major banks would have to add a total of about NZ$12.8 billion in Tier 1 capital to meet its requirements. The central bank proposed a five-year transition period.

Australia and New Zealand Banking Group has flagged a capital increase of NZ$6-8 billion following the RBNZ's proposal. Commonwealth Bank of Australia and Westpac have acknowledged the proposal, but have not provided any concrete figures.

"The five-year transitional time frame given to the banks to meet the revised capital framework does appear manageable," Goldman Sachs banking analysts said in a note to clients Monday.

The Australian Prudential Regulation Authority (APRA) earlier this year also flagged higher capital requirements for the country's major banks in order to bring them more in line with international standards.

If APRA recognises the extra capital at the New Zealand units of Australian banks, they would just need to repatriate the funds and not have to increase their overall capital level, the Goldman Sachs analysts said.

"We note that this final point remains highly uncertain."

An APRA spokesman for was not immediately available for comment.

NAB, Australia's fourth-largest lender, said it and its unit would collectively engage with the RBNZ and the APRA regarding the changes.

Separately, NAB said its CEO would take about two months leave around the scheduled release of a major report into the Australia's finance sector, prompting a rebuke from a shareholder group.

Copyright Reuters, 2018