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ANZ shares race higher after ruling out capital raising following RBNZ update

The Australia and New Zealand Banking Group (ASX: ANZ) share price has returned from its trading halt and is surging higher on Thursday.

At the time of writing the ANZ share price is up a sizeable 2.3% to $24.75.

Why is the ANZ share price surging higher?

This morning ANZ put its shares in a trading halt whilst it prepared a response to an announcement that was due to be made by the Reserve Bank of New Zealand.

That announcement was in relation to the Reserve Bank’s proposed revision of its capital framework.

The central bank was widely expected to announce a requirement that banks increase the capital buffers of their subsidiaries in the country in order to protect the New Zealand economy from any massive shocks that could come along in the future.

This sparked fears that a capital raising might be needed to help the bank reach its targets if the Reserve Bank revealed onerous targets.

What did the Reserve Bank of New Zealand announce?

This morning the Reserve Bank of New Zealand made its announcement and advised that it wants banks operating in the country to lift their total capital. This will be from a minimum of 10.5% to 18% for the four large banks and to 16% for the remaining smaller banks.

This compares to the average level of capital currently held by banks of 14.1%.

The good news for ANZ, Westpac Banking Corp (ASX: WBC), and the rest of the big four, is that instead of the expected five-year timeframe, the Reserve Bank has gifted them seven years to get their affairs in order.

ANZ response.

Late this morning ANZ responded to the news. It revealed that the net impact will be an increase in Common Equity Tier 1 (CET1) capital of ~A$3.0 billion by July 2027. This includes a~A$1 billion management buffer.

The impact is net of ~NZ$1.5 billion of profits that ANZ NZ has retained in 2019 in anticipation of meeting higher requirements.

ANZ Chief Executive Officer Shayne Elliott said: “Today’s announcement provides the certainty required to prepare our business for the future. While the increased capital requirements remain significant, the consultation was thorough and the concerns of industry were given a fair hearing. We remain aligned with the RBNZ’s objective to ensure a sound and efficient financial system in New Zealand.”

Much to the relief of shareholders, the CEO believes ANZ can achieve these targets without the need to raise additional capital from shareholders.

“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,” Mr Elliott concluded.

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Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

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