New capital rules aim to make lending cheaper and more competitive
The Reserve Bank of New Zealand (RBNZ) has confirmed new capital rules for banks and other deposit-taking institutions, in a move designed to support lending while keeping the financial system safe.
Capital rules determine how much of their own money banks must hold as a buffer against losses. While these settings help protect depositors and the wider economy, they also influence how much banks can lend and how expensive that lending is.
RBNZ Board Chair Rodger Finlay said the Bank has reviewed its approach in light of changes since 2019, including stronger supervision and the introduction of the Depositor Compensation Scheme. He said this had allowed the RBNZ to safely reduce capital requirements, while still maintaining confidence in financial stability.
What’s changing and why it matters
The new settings reduce the amount of capital banks must hold, simplify how capital is measured and adjust risk weights so they better reflect the actual risk of different types of lending. The rules for the four largest banks will also be more closely aligned with those used in Australia.
Reserve Bank Governor Anna Breman said the goal was to strike a better balance between safety and efficiency. She said the changes were expected to lower banks’ funding costs, which should flow through to borrowers over time through increased lending and lower interest rates.
Dr Breman added that smaller and mid-sized deposit-takers would see a proportionately larger reduction in capital requirements than the big four banks. This is intended to help smaller players compete more effectively, which could increase choice for borrowers.
Support from Government
Finance Minister Nicola Willis welcomed the changes, saying concerns had been raised for several years that overly strict capital rules were reducing competition and making borrowing more expensive.
Ms Willis said higher costs for banks ultimately meant higher costs for borrowers and less lending to important sectors such as agriculture. She said the new settings remained prudent, but struck a better balance between managing risk and encouraging competition.
What this means for borrowers
These changes won’t lead to immediate shifts in mortgage rates or lending decisions. However, over time, lower costs and stronger competition could help improve access to credit and place downward pressure on borrowing costs.
Borrowers will still be assessed on income, expenses and overall financial position, but a more competitive banking environment can create better options.
If you or your clients need a hand making sense of how these changes affect your plans, we’re here to help. Feel free to reach out for a chat or share our details with anyone who needs a clear path forward.