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Higher bank capital requirements: RBNZ

Charlotte Greenfield and Praveen Menon
"Our decisions are not just about dollars and cents," RBNZ Governor Adrian Orr said

New Zealand's central bank says it will go ahead with plans to increase capital requirements for banks but offered more time for the lenders to make the changes than originally proposed.

The country's top four Australian-owned banks will have to raise their total capital to 18 per cent from a minimum of 10.5 per cent now, while the remaining smaller banks will have to raise it to 16 per cent, the Reserve Bank of New Zealand (RBNZ) said in a statement.

The average level of capital currently held by banks is 14.1 per cent, the RBNZ said.

The decision will take effect from July 2020 but the time frame to meet the requirements was increased to seven years from the previously proposed five years, according to the RBNZ.

The RBNZ also offered more flexibility to banks on the use of specific capital instruments.

"Our decisions are not just about dollars and cents," said RBNZ Governor Adrian Orr.

"More capital in the banking system better enables banks to weather economic volatility and maintain good, long-term, customer outcomes," he said.

High-quality tier 1 deposits for the top four banks would now need to be 16 per cent, up from the current requirement of 8.5 per cent.

These banks already hold an average of 13.2 per cent in tier 1 capital.

Smaller banks would have to increase their tier 1 capital to 14 per cent.