Cover IMF Working Papers
New Zealand Banks’ Vulnerabilities and Capital Adequacy
Author: Mr. B. Jang and Mr. Masahiko Kataoka
Series:
IMF Working Papers
Volume/Issue:
Volume 2013: Issue 007
Language:
English
Publication Date:
11 Jan 2013
DOI:
https://doi.org/10.5089/9781475561371.001
ISBN:
9781475561371
ISSN:
1018-5941
Pages:
23
Keywords:
WP; bank; capital ratio; Tier 1; disclosure statement; mortgage; risk weight; Basel II; capital; loss given default; probability of default; stress tests; parent bank; LGD rate; asset quality; bank profit; bank asset composition; bank market share; banks' provision; bank asset quality; Capital adequacy requirements; Residential mortgages; Loans; Nonperforming loans; Australia and New Zealand; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund