Featured Product

    RBNZ Publishes Financial Stability Report for May 2020

    May 27, 2020

    RBNZ published the financial stability report for May 2020. This review of the financial system in the country highlights that the economic disruption associated with COVID-19 will present challenges to the financial system. The financial system in a good position to support recovery. Banks have good capital and liquidity buffers and need to use these to support customers and contribute to the economic recovery. However, outside of the banking system, some parts of the financial system entered this downturn in a vulnerable position. Some non-bank deposit-takers have low profitability and are operating with low buffers. There has been consolidation in this sector in recent years and this is expected to continue. Resilience could also be boosted by seeking operational efficiencies, asset sales, and additional capital.

    Although RBNZ has eased some prudential requirements, the profitability of banks will be affected by rising non-performing loans in the downturn. Appendix 1 to the report outlines economic and financial policy responses to the challenges posed by COVID-19 pandemic. While there remains considerable uncertainty about the economic outlook, stress tests conducted by RBNZ suggest that banks can withstand a broad range of adverse economic scenarios while retaining sufficient capital to continue lending. RBNZ is undertaking stress test exercises to assess resilience of the banking system if the economic downturn becomes very prolonged. The two scenarios developed to test the banking system have similar economic projections to the Treasury’s COVID-19 scenarios 2 and 5 during the peak of the recession in the first 18 months. In the subsequent recovery phase, as the virus worldwide is brought under control, the bank stress test scenarios assume a protracted global slowdown and a slower recovery for the New Zealand economy than the Treasury’s scenarios. Both scenarios are significantly more adverse than the scenarios published in the May 2020 Monetary Policy Statement.

    Results from the RBNZ modeling indicate that banks can maintain capital above their minimum capital ratios in the Baseline Stress scenario. Banks are projected to fall into their capital conservation buffers, meaning they would be meeting their regulatory requirements but also required to develop plans to repair their capital positions over time. Preliminary results from the Very Severe scenario illustrate that there are limits to the economic shocks that banks in New Zealand would be able to withstand with their current capital positions. In this scenario, the RBNZ modeling shows that banks would likely fall below several of their minimum regulatory capital requirements. In this situation, banks would have to undertake significant recovery responses such as raising new capital from shareholders to avoid resolution options. Some of the economic scenarios produced by the Treasury in April are significantly more severe than the scenarios RBNZ is assessing, in terms of the level of unemployment and decrease in economic activity. Under these more extreme (and less likely) scenarios, additional capital and other mitigating actions would be required to avoid widespread failure in the banking system.

     

    Related Links

    Keywords: Asia Pacific, Banking, Insurance, COVID-19, Basel, Credit Risk, Liquidity Risk, Stress Testing, Regulatory Capital, Financial Stability Report, RBNZ

    Featured Experts
    Related Articles
    News

    BoE Seeks Information Before Migrating Statistical Reporting to BEEDS

    The Bank of England (BoE) published the Statistical Notice 2021/09 requiring additional information from firms and software vendors to assist in the onboarding and testing phases for migrating statistical reporting to the BEEDS portal.

    October 25, 2021 WebPage Regulatory News
    News

    FCA Publishes Final Rules on Investment Firms Prudential Regime

    The Financial Conduct Authority (FCA) published the final rules on the Investment Firms Prudential Regime (IFPR) to streamline and simplify the prudential requirements for solo-regulated UK firms authorized under the Markets in Financial Instruments Directive (MiFID).

    October 25, 2021 WebPage Regulatory News
    News

    CFRF Publishes Guides to Manage Financial Risks from Climate Change

    The working groups of the Climate Financial Risk Forum (CFRF) published a second round of guides (or Session 2 guides), written by the industry for the industry, to help financial firms manage climate-related financial risks.

    October 21, 2021 WebPage Regulatory News
    News

    PRA Finalizes Policy for Non-Performing Exposure Securitizations

    The Prudential Regulation Authority (PRA) published the final Policy Statement PS24/21 that contains the new Non-Performing Exposures Securitization Part of the PRA Rulebook and an updated Supervisory Statement SS10/18 on the general requirements and capital framework with respect to securitizations.

    October 21, 2021 WebPage Regulatory News
    News

    EBA Updates Filing Rules for Supervisory Reporting

    The European Banking Authority (EBA) published version 5.1 of the filing rules for supervisory reporting.

    October 19, 2021 WebPage Regulatory News
    News

    ECB Amends Guideline on Procedures for Collection of AnaCredit Data

    The European Central Bank (ECB) Guideline 2021/1829 on the procedures for the collection of granular credit and credit risk data has been published in the Official Journal of European Union.

    October 19, 2021 WebPage Regulatory News
    News

    ECB Amends Guideline on Procedures for Collection of AnaCredit Data

    The European Central Bank (ECB) Guideline 2021/1829 on the procedures for the collection of granular credit and credit risk data has been published in the Official Journal of European Union.

    October 19, 2021 WebPage Regulatory News
    News

    EBA Publishes Standards on Disclosure of Investment Policy Under IFR

    The European Banking Authority (EBA) published the final draft regulatory technical standards on disclosure of investment policy by investment firms, under the Investment Firms Regulation (IFR).

    October 19, 2021 WebPage Regulatory News
    News

    EU to Explore Potential of Establishing a Joint Cyber Unit

    The European Council adopted conclusions inviting the European Union (EU) and the member states to further develop the cybersecurity crisis management framework.

    October 19, 2021 WebPage Regulatory News
    News

    EC Sets Out Work Program for 2022

    The European Commission (EC) adopted the work program for 2022.

    October 19, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7598