The Reserve Bank of New Zealand (RBNZ) has said there will be no payment of dividends on ordinary bank shares to protect the local financial system during the “period of economic uncertainty” and that the banks should not redeem non-CET1 (common equity tier 1) capital instruments.
The restrictions for Kiwi banks will be in place until further notice, with the RBNZ aiming to relax them when the economic outlook has recovered.
The initiative has followed other measures to maintain higher levels of capital during the COVID-19-induced downfall. RBNZ has deferred the start of increased capital requirements by 12 months to July next year, along with delaying other planned regulatory initiatives, hoping to give banks space to focus on lending to clients.
As a result of the restrictions, ANZ’s local arm will be prevented from redeeming its NZ$500 million capital notes on 25 May, although it is able to make interest payments on the notes.
The terms of the capital notes also provide for their conversion into a variable number of ANZ ordinary shares, which would result in an equivalent increase in ANZ’s common equity tier 1 capital (around 12 basis points at level 2).
CBA on the other hand has said it is well capitalised and dividends from its NZ subsidiary, ASB Bank, only affect its level 1 CET1.
“The strong level 1 surplus capital position means CBA is well placed to absorb the suspension of ASB dividends,” the bank stated.
NAB commented it does not anticipate the dividend restriction on its local bank, BNZ, will have a material impact on its level 1 capital position or its level 2 capital ratio.
RBNZ also introduced a new term lending facility (TLF) alongside the limits, a new longer term funding scheme in support of the New Zealand government’s Business Finance Guarantee Scheme to promote lending to businesses.
The TLF is similar to the recently launched term auction facility (TAF), with both providing liquidity to the banking system.
RBNZ governor Adrian Orr commented: “We are working in step with the government and the country’s banks to provide the economic support that is crucially needed during this uncertain time.”
“New Zealand’s financial system remains sound, with strong capital and liquidity buffers. We are confident that the financial system is well placed to respond to the impacts of coronavirus.”
Assistant governor and general manager of economics, financial markets and banking, Christian Hawkesby added RBNZ is engaging with banks on the operational details of the scheme, with the intention of launching its first TLF operation in May.
