The Reserve Bank of New Zealand will tighten its capital requirements for banks as part of its review of capital adequacy in the country's banking system.
Under in-principal decisions issued by the central bank, New Zealand's four largest banks will be required to report risk-weighted assets calculated using both their own risk models, as well as the standardized model.
In addition, the central bank will impose more restrictions on internal models to estimate credit-risk related risk-weighted assets.
The new requirements aim to bolster how much capital banks need to hold, make it easier for investors to assess capital adequacy, as well as minimize any unintended competitive advantages, the Reserve Bank of New Zealand said.
The four largest banks in New Zealand by total assets are ANZ Bank New Zealand Ltd., Bank of New Zealand, ASB Bank Ltd. and Westpac New Zealand Ltd., according to S&P Global Market Intelligence data.
The central bank added that it will conduct a quantitative impact study of the in-principle decisions as part of its capital review, while the final phase will address the setting of minimum capital ratios. The key elements of the capital review are expected to be completed in 2018.