The big four ASX bank share prices have been hit by the Reserve Bank of New Zealand (RBNZ) proposing additional capital requirements.
The share price of Commonwealth Bank of Australia (ASX: CBA) fell nearly 2%, Westpac Banking Corp (ASX: WBC) shares dropped 2.2%, the Australia and New Zealand Banking Group (ASX: ANZ) share price declined 2.7% and the National Australia Bank Ltd (ASX: NAB) share price went down 1.7%.
Essentially, investors thought this news should wipe billions of dollars off the value of the bank market capitalisations.
The New Zealand Reserve Bank has proposed a staged transition of the different components of the revised capital framework over the next five years.
Banks must give submissions on the proposals by 29 March 2019.
Some of the ASX banks were quick to respond, outlining that they’re already in good positions.
Commonwealth Bank said that its New Zealand subsidiary, ASB Bank, had Total Common Equity Tier One Capital of NZ$5.9 Billion and Total Tier One Capital of NZ$6.9 billion and Total Capital of NZ$7.7 billion. CBA’s Total Capital was $69 billion.
Westpac said that Westpac New Zealand is already strongly capitalised with a Tier One capital ratio of 14.5% at 30 September 2018.
NAB and ANZ didn’t provide any figures, but said they will respond in due course.
Holding more capital makes banks safer throughout the cycle, particularly in downturns. However it also supposedly lowers their profitability. Higher risk, higher reward after all.
I have been saying for a while that I don’t believe the ASX banks are a buy due to the various headwinds they face including a falling housing market and more regulations. Today’s New Zealand news is yet another reason why I think banks are better off outside our portfolios.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.