New Zealand Banks’ Vulnerabilities and Capital Adequacy

January 11, 2013

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Format: Chicago

B. Jang, and Masahiko Kataoka. New Zealand Banks’ Vulnerabilities and Capital Adequacy, (USA: International Monetary Fund, 2013) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The paper finds that, given New Zealand’s conservative approach in implementing the Basel II framework, New Zealand banks’ headline capital ratios underestimate their capital strength. A comparison with Canadian, UK and Australian banks highlights the impact of New Zealand’s more conservative approach. Stress tests in the paper show that four large New Zealand banks could withstand sizable stand-alone shocks to their exposure to either residential mortgages (calibrated on the Irish crisis experience) or corporate lending. However, combined shocks to both residential mortgages and corporate lending would put more pressure on the banks’ capital. Given high bank concentration and large offshore wholesale funding needs, the merits of higher minimum capital requirements for systemically important domestic banks could be considered, together with other measures to be implemented.

Subject: Banking, Basel II, Capital adequacy requirements, Financial institutions, Financial regulation and supervision, Loans, Nonperforming loans, Residential mortgages

Keywords: Asset quality, Australia and New Zealand, Bank, Bank asset composition, Bank asset quality, Bank market share, Bank profit, Banks' provision, Basel II, Capital, Capital adequacy requirements, Capital ratio, Disclosure statement, Global, LGD rate, Loans, Loss given default, Mortgage, Nonperforming loans, Parent bank, Probability of default, Residential mortgages, Risk weight, Stress tests, Tier 1, WP

Publication Details

Pages:

23
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/007
Stock No:

WPIEA2013007
ISBN:

9781475561371
ISSN:

1018-5941

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