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Moody's: Higher capital requirements are credit positive for New Zealand banks

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Moody's: Higher capital requirements are credit positive for New Zealand banks

The Reserve Bank of New Zealand's recent proposal of raising capital requirements for banks is credit positive, as it will boost banks' resilience to potential shocks, Moody's said.

New Zealand's central bank has proposed to almost double the required high-quality capital that banks must hold in order to prevent bank failures.

The rating agency said Dec. 20 if the proposed new requirements are implemented, the total capital ratio requirement for domestic systemically important banks, or D-SIBs, and other banks will be raised to 18% and 17%, respectively, from 10.5% currently.

The higher capital requirements will also include new prudential capital buffers, such as a 1.5% countercyclical buffer and a 1.0% buffer for D-SIBs.

The central bank also proposed to limit the difference in risk-weighted assets calculated by two approaches: the internal ratings-based approach used by D-SIBs and the standardized approach by other banks.

"The proposals reinforce our view that New Zealand banks' capitalization compares favorably with global peers. They also underpin our view that New Zealand's definition of regulatory capital is conservative by international standards, even compared with stringent Australian rules," Moody's said.

The central bank said lenders are expected to gradually meet the new requirements by 2023.