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CBA, NAB & ANZ share prices: RBNZ capital decision in focus

The big four Australian banks have all seen their share prices rise today, following the release of the Reserve Bank of New Zealand's final decision concerning capital requirements in New Zealand.

The $20bn question answered

Today was an important day for the Reserve Bank of New Zealand (RBNZ) as well as for some of Australia’s oldest and most important banks.

Specifically, the RBNZ has today released its final decision relating to updated capital requirements for large and small New Zealand banks/ banks with New Zealand operations.

As was mostly expected by analysts prior to today’s media release: the RBNZ’s capital requirements have come in significantly stricter than ARRA’s own ‘unquestionably strong’ CET1 ratio requirement of 10.5%, for Australian banks.

In comparison to APRA, the RBNZ today revealed that total capital requirements for NZ banks would increase:

‘From a minimum of 10.5% now, to 18% for the four large banks and 16% for the remaining smaller banks. The average level of capital currently held by banks is 14.1%.’

The ‘four large’ New Zealand banks in question are ANZ, ASB, BNZ, and Westpac.

Speaking of these increased capital requirements, Deputy Governor and General Manager of Financial Stability Geoff Bascand said:

‘Following the Global Financial Crisis, many regulators around the world have been taking steps to improve the safety of their banking systems. We’re confident we have the calibrations right for New Zealand conditions.’

Mr Bascand further noted that:

‘These changes will be subject to monitoring, with the Reserve Bank reporting publicly on implementation during the transition period.’

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ANZ, CBA and NAB share prices all rise on RBNZ news

As analysts have previously suggested and as RNZ today reported, these new capital ‘rules will force the sector to raise as much as $20 billion to meet the new minimum capital levels.’

While that figure is not small by any means – it looks to be mostly in-line with previous expectations. Moreover, the RBNZ’s final decision, as it relates to their capital review, actually appears somewhat more moderate in a number of areas.

For example, the RBNZ noted that as part of these new regulatory rules, New Zealand banks will have:

‘More flexibility […] on the use of specific capital instruments’, ‘a more cost-effective mix of funding options’, ‘a lesser increase in capital for the smaller banks’, ‘a more level capital regime for all banks’, and ‘more transparency in capital reporting.’

Moreover, the RBNZ has upped the time-frame for banks to meet these new requirements from five to seven years.

Ultimately, that relatively short list and lengthened time-frame likely goes a long way to explain investor bullishness around Australia’s big four today, which have otherwise struggled in recent times.

On this front, the Commonwealth Bank of Australia (ASX: CBA) saw its share price jump 1.04%, the Australia and New Zealand Banking Group (ASX: ANZ) share price rose around 2.32% and the National Bank of Australia gained 2.01%. Even Westpac, for all its recent issues, saw its share price rise, gaining 1.27% during today’s session.

Looking at specific comments from the banks, the relative optimism around the RBNZ’s capital decision proves unmistakable.

The Commonwealth Bank of Australia, for example, said:

'CBA is well placed to meet the changes, noting that a significant increase in capital ultimately increases the cost of providing loans to customers.'

ANZ’s response in focus

Alleviating potential concerns that ANZ would be required to raise more capital, the bank’s Chief Executive Officer, Shayne Elliott commented that 'today's [RBNZ] announcement provides the certainty required to prepare our business for the future.'

Mr Elliott further said:

'We have been planning for these changes since the original consultation. Given the extended transition period and our strong capital position, we are confident we can meet the higher requirements without the need to raise additional capital.'

Finally, NAB's CFO, Gary Lennon, commenting on today's news, said:

'The ultimate impact on the NAB Group will be dependent on various factors, including BNZ's balance sheet size over the phased implementation period, as well as potential mitigating actions undertaken.'

Final thoughts

With all this considered, it will be interesting to see how analysts alter their assumptions on the big four now that RBNZ has finalised their capital decision.

We will provide updates accordingly.

This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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