New Zealand's major banks sitting on NZ$48.5b of cash with no immediate need to raise funds in dicey overseas markets

New Zealand's major banks sitting on NZ$48.5b of cash with no immediate need to raise funds in dicey overseas markets

By Gareth Vaughan

Amid concerns sovereign debt woes in Europe and the United States could push up the cost of New Zealand banks' funding and potentially even lead to credit markets freezing as they did after Lehman Brothers collapsed in 2008, New Zealand's big banks are sitting on more than NZ$48 billion worth of liquid assets and don't have major short-term funding needs.

The latest general disclosure statements from ANZ, ASB, BNZ and Westpac show the four with liquid assets of NZ$18 billion, NZ$10.548 billion, NZ$9.965 billion, and NZ$10.054 billion respectively, as of March 31. Across the four, that's a total of NZ$48.567 billion. State owned Kiwibank, meanwhile, had NZ$2.328 billion worth of liquid assets as of March 31.

Liquid assets include the likes of cash, treasury bills, government securities, residential mortgage backed securities, bank bonds, and call deposits with the Reserve Bank.

The banks' cashed up positions come at a time of weak lending growth with BNZ the only one of the big four to have grown overall lending in the March quarter when its gross loans and advances to customers rose NZ$523 million to NZ$56.172 billion. The latest Reserve Bank sector credit data shows weak lending growth in the three months from March to June. Total household claims (housing and consumer loans) rose NZ$712 million to NZ$184.103 billion, business debt rose just NZ$16 million to NZ$72.348 billion and agriculture debt increased NZ$50 million to NZ$47.251 billion.

BNZ 'very comfortable'

BNZ Treasurer Tim Main told his bank was feeling "very comfortable at the moment" with its funding and liquidity position.

"We have already completed this year’s term funding requirements of around NZ$3.1 billion and have already pre-funded around NZ$1 billion of next year’s requirement," Main said. "This has in part been assisted by lower asset growth and good deposit growth."

BNZ has been the most active covered bond issuer among the New Zealand banks, having issued about NZ$3.47 billion worth since becoming the first New Zealand bank to issue covered bonds in June last year.

"We are targeting more pre-funding in September, though only a relatively small amount (NZ$500 million). Our next planned major public offshore issue is for November," Main said.

He said BNZ's covered bond exposure was now at around 6% of total assets, which is shy of the Reserve Bank's 10% limit.

"Our plan is to undertake one more public covered bond transaction (probably next year) to take this to around 8%, at which point we will step back from covered bonds and focus back onto senior unsecured funding. Having a 2% buffer on covered bonds will allow for any emergency funding required," Main added.

Despite its lending growth out pacing that of its rivals, BNZ said in its half-year results that one of the main reasons for its flat margins was because the bulk of the NZ$1.75 billion it raised in a European covered bond issue last November was being held in cash and earning lower returns than what it cost the bank to raise the money.

Meanwhile, in the very short-term, Main suggested bank treasurers will watch offshore commercial paper markets very carefully, given this market will reflect immediate concerns in capital markets generally.

"The good news though is that all NZ banks are AA (credit) rated, and if anything, Australian and New Zealand banks are enjoying something of a 'flight to quality'," Main said.

 Kiwibank, after recent overseas commercial paper programme launch, 'well positioned' with  'modest and manageable outstandings'

A spokesman for Kiwibank, which had borrowed NZ$927.275 million through a Euro denominated short-term commercial paper programme set up in November by the end of March, said the bank was well positioned and maintained a strong liquidity position to cope with any dislocation overseas.

"We continue to monitor domestic and offshore funding opportunities. Our short term offshore outstandings are modest and manageable," the Kiwibank spokesman said.

"New Zealand issuers in offshore commercial paper markets are benefiting from the relative strength of the New Zealand economy · In comparison to during the Global Financial Crisis, offshore funding is less of a concern to New Zealand banks due to longer maturity profiles, flat asset growth and improved savings rates."

ASB eyes covered bond issue by year's end

ASB chief financial officer Shayne Bryant said his bank was hoping to get an inaugural covered bond issue away before the end of 2011 and was currently investigating programmes that would allow it to issue covered bonds both domestically and offshore.

Nonetheless Bryant said ASB was very well funded.

 "We remain well above the Reserve Bank’s core funding ratio,' Bryant said. "Further, with forecast deposit growth outstripping forecast lending growth, the need for new additional wholesale funding is not anticipated."

 ANZ, the only other one of the big four yet to issue covered bonds, put its initial issue on ice in June. Nonetheless an ANZ spokeswoman said the bank was "very comfortable" with its funding situation.

 No more 2011 funding planned at Westpac

A Westpac spokesman said his bank didn't currently have any offshore funding, or covered bond issues planned, for the balance of the 2011 financial year.

" We are comfortably positioned, our June covered bond was on top of current needs so we have capacity to sustain substantially long outages in global capital markets," the Westpac spokesman said.

Over the weekend BNZ CEO Andrew Thorburn said Standard & Poor's downgrade of the United States' sovereign credit rating, and turmoil in Europe as market attention moved to Italy's debt, was likely to see the cost of funds for New Zealand banks rise.

36% of the big five's funding from overseas

PricewaterhouseCoopers' Banking Perspectives report, released last week, showed the big four banks plus Kiwibank obtained 36% of their funding from overseas as of the first halves of their current financial years. PwC noted bank customer deposits rose nearly 5% to NZ$174 billion from NZ$166 billion during the period.

"The increasing tenor of the funding book has stabilised in the current period," PwC said, "suggesting that the banks have reached a stage where they are comfortable with their compliance with the Reserve Bank's liquidity requirements as well as their own internal viewpoints of the current risks in the funding markets."

 The auditing firm also noted that the major banks have a buffer of at least 5% over the current 70% core funding ratio.

Introduced in April of last year as a move to reduce New Zealand banks' reliance on short-term overseas borrowing, the core funding ratio sets out that banks must secure at least 70% of their funding from retail deposits or wholesale sources such as bonds with durations of at least one year. The central bank lifted the ratio to 70% from 65% on July 1 and will increase it again, to 75%, on July 1 next year. In a speech over the weekend Reserve Bank Governor Alan Bollard said there could be further "minor developments" to the liquidity policy.

 Taxpayer still on hook for NZ$9 billion of bank wholesale funding

Although no longer party to a Crown retail deposit guarantee, the taxpayer is still guaranteeing NZ$9 billion (as of the most recent Crown financial statements) worth of bank wholesale securities guaranteed through the government's wholesale funding guarantee facility which was in place from November 2008 to April 2010. Treasury has made no provision in the Crown accounts for losses under the scheme believing the probability of loss is  remote.

"At the time of closing the scheme on 30 April 2010, the Crown had issued 24 guarantee certificates; the benefit of those guarantees will remain in place for the underlying securities until the scheduled maturity of those securities. The terms of these securities range from 2 to 5 years. Over time, the value of securities issued with the benefit of Crown guarantees will reduce, with the last guarantee certificate expiring in October 2014," Treasury says.

The guaranteed wholesale securities were issued by ANZ, BNZ, Westpac and Kiwibank. ASB never issued any securities under the scheme. In Australia the major banks, owners of New Zealand's majors, recently stepped up their efforts to buy back tens of billions of dollars worth of Australian government guaranteed wholesale funding as they sought to replace it with cheaper funding. However, the banks here won't be following suit. For whilst their Aussie parents pay monthly fees on all their outstanding guaranteed debt, their subsidiaries here had to pay Treasury fees upfront when each guarantee was granted, and Treasury says they're non-refundable.

The objective of the government's opt-in wholesale funding guarantee was to facilitate access to international financial markets by New Zealand banks at a time when international investors were highly risk averse and where many other governments had offered guarantees on their banks’ wholesale debt.

(Story updated to reflect ANZ has NZ$18 billion of liquid assets, rather than NZ$11.8 billion, when NZ$6.2 billion of residential mortgage backed securities not included in the GDS liquid assets disclosure, are added. This lifts total liquid assets held by the big four banks to NZ$48.567 billion from NZ$42.425 billion).

This article was first published in our email for paid subscribers this morning. See here for more details and to subscribe.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.


Comment Filter

Highlight new comments in the last hr(s).

Well you know its serious, when they have to release a press statement.( Lets not mention the Aussie housing market)

"Lets not mention the Aussie housing market"

If the aussie housing market stalls then lending growth will also stall.  That would reduce the need for increased bank funding and be good for their bash flow and funding position.

It seems like a good thing to me.

Doesn't whether it is a good thing or not for the banks also depend on how many bad loans the banks have when the aussie market stalls?

Don't know on the Italian bonds ostrich. I assume you mean these govt bonds - Will see if I can find out.

ostrich, a NAB spokeswoman tells me: "We don't have exposure to these bonds anymore." She didn't provide any detail on when they were disposed of or whether a haircut was taken though.

Isn't Mr. Thodey still managing an SPV for the NAB out of London ( all the dodgy CDO's  and other assorted nasties). Perhaps that vehicle has a new tranche of assets?

They took  CD swaps with a greek bank who then insured with AIG who used fannie mac as security, nothing to see here , keep moving please.

Will take a look.

Ostrich, not quite sure what you're getting at here and I don't have Bloomberg. Are you suggesting Shanghai Pengxin (the Crafar bidder) is not a private company but rather an arm of the Chinese govt?

Run down Fuqiang Zhang...has connection back through Xingye Copper Int.Grp....your best start there with govt links.

Call me conservative, but I pulled all my funds from the ASB yesterday.


Scarfie, can I ask what the thought behind that was..and where did you move to?

I was thinking of moving to Kiwi Bank as they are underwritten by the assets of NZ Post. But with the US downgrade where else is there to go but metals. Sure they might make a temporary hit as people need to sell to cover shares in other areas, but it is likely to keep rising.

It is also a defacto short on the NZD, which I think will work out fine in the long run despite initial losses in that area.

I only lose if both metals and NZD move against me.

QE III may move the NZD up, but also the metals so at least I break relatively even. 

Pretty happy with that decision so far as I made the phone call early yesterday:) I think silver will eventually follow gold up. Most of all I am safe from bank failure, and the bank can't leverage against my money any more.

When property comes down I will look to productive land.

I could be wrong but those are my thoughts and actions anyway. I have many skills that will see me survive no matter what.

I assume you still have some sort of cheque account? As far as I know, you can't yet pay for your groceries with precious metals.

Much common sense there Scarfie. However I am not so convinced by silver - its duality may hold it back; the fall in demand from its industrial commodity uses may outpace its allure as a poor man's currency (behind gold). Perhaps if it fell below $US30/oz.......

I said months ago that the government would be forced to bring back its deposit guarantee. I stand by that comment. In the meantime Kiwibank IMO is probably a decent proxy, specifically its one month (and to a lesser extent 3 month) notice accounts which still pay reasonable rates. I certainly would not now be exposed to any of the junior finance organizations ie the various Heartland components, residual finance companies etc (excepting accounts opened when they were still govt guaranteed).

Perhaps, but I see the poor mans gold as the reason for it going up. Once the masses get into metals and drive the price really high, gold will be out of reach.

But I did read a comment today about manipulation going on for people trying to cover silver shorts.

Oh and I have kept some cash aside for liquidity:) Gee I though the cheque had gone the way of the dinosaur.

Scarfie, good calls all round I would say, and I like the no more bank leveraging angle.

Metals if you have physical possession, and not stored in a bank vault etc, I see them , like you as a hedge against NZD.

The governement would have to bring back the deposit scheme, because the resultant chaos should depositors lose out will certainly result in riots in NZ.

I am certain the banks are sure to realise that deposit coverage will return.

Seems we csan forget about the bankers being reigned in or structural change to the systems ever happening!

Hi Andyh,

Kiwibanks notice saver is a step below a term deposit in the event of a bank failure.

You are better to get 3.1% in a front runner account there.

I have a couple of million in the 1 and three month notice savers that I have given notice on. The one month expires next week. 

Think I will just leave it in the front runner account then.

I have a bit at Rabo bank too. 

Where to put it?

Sold our house last year and have all that in the banks too.  Not a nice feeling.  I would rather have some money in a property.

My pile of sovereigns feels good at the moment:)

We too have large sum in one bank.. and not feeling at all good about that, going to split it up now into $50,000 lots.. as concerned about that talk of possibly freezing any deposit sum above $50,000 if a bank were to get into trouble (might not see those frozen funds again Im thinking)

Hi James,

the problem is we dont have enough banks to spread it around.  The 50k thing was just something that a poster here mentioned a few weeks ago.  There has been no talk by the RBNZ of a 50k amount that would be safe.  The bank was really saying in the event of a bank failure it would still be able to operate so customers could access wages etc.

Bloody worrying times aye!

Yes indeed,read somewhere RB saying something like? in the event that a bank does fall over, that will be the concern of the bank...dont think there will be any Govt.guarantees this round.Thanks for your info on bonds and gold, will be looking into that pronto...and Rabo bank

I have always taken the view that the RBNZ proposals are to allow the banks to access your wages to pay your mortgage to them:-P

Ok, james. If the banks en-masse 'freeze,' or whatever, deposits,. then what happens? Intstantly your house; your gold or whatever is also 'frozen', or worthless, as well. After all, everything today has a monetary value, and if that's taken away, none of us will be able to function. Ergo: The banks are going nowhere. If any one or more of the banks get into strife, there will be forced marriages etc before default. to protect those that are viable. ( Northern Rock; RBS etc being good templates, and to some extent, SCF, here)

 Hi Nicholas, I dont know what would happen next. Finance companies have frozen deposits in the past. Have seen what happened to finance companies here and what can and did happen with banks overseas and in earlier times.I have no answers, just searching for them.

That mischievous  Deep T commenting again... I'm assuming (until told otherwise) that Aus banks are of interest in NZ. 

"In 2008 before the federal government guaranteed the banks debt at minimal cost, the market’s belief of TBTF and impled government guarantees had not taken hold and been priced in. Today it has been priced into the banks cost of funds. Banks balance sheets are much larger with greatly increased exposures to a more inflated housing market.

As the global deleveraging continues it’s likely to be the availability of investors to provide debt that will be the bigger problem. A scenario where bank and Australia’s cost of funds increase as house prices plummet is a significant risk.

Lastly, and let me emphasise the point again, going into cash by depositing money with an Australian bank is an investment in residential mortgages which is why deposit rates are so high."

Not feeling secure with my bank deposits either and looking at switching to Kiwibank (maybe ?) Read an article recently with the idea of freezing peoples bank deposits (should a bank get into trouble) of any amount above $50,000.I take this to mean,you really should not deposit more than $50,000 in any one bank.Would have no idea how to go about buying gold or silver.No real point in having money in the bank Im feeling,dont know what to do for the best.Any ideas?

if you believe its a depression, Spread it across a few banks.....short term govn bonds....anything thats cash equiv.  You can also hold cash, but a Govn can issue new "paper" at the flick of a pen at 1/2 the old value and then your hoard becomes worthless...

TSB and Kiwibank would seem the safest bet I can see....if you have a wife/partner have seperate accounts.

If you go for gold and silver, take ownership of it at the very least, and if you can pay cash only. You want to be untracable, Govns have a nasty habit of taking it off you and giving you "dollars" in exchange. They also raid deposit a safe spot in preferably under your house is unfortunately my only suggestion.

I think the biggest thing is to accept some losses are minimising those and not gambling on making gains might be a better mind set.


I also think we're going the way of depression but hubby and I are in two minds about what to do with a chunk we have sitting in the bank. We were going to put it on the mortgage (thank god we can pay it comfortably on just one wage, and that its not horrendous! - gone in less than 10years). From various comments over the past few months I'm getting the feeling that thats the wise course of action to take rather than keeping it hoarded as cash i.e. reduce the debt as quick as possible.

(From experience/not advice): Repaying a loan to the bank in good times makes sense; they WILL re-lend if you need it, and qualify. In bad times, they are a little more 'reluctant' to give you back the money! I'd concider any off-set, money on deposit versus the interest paid on a loan, as a facility fee, and one that YOU control. You can give a bank back its money in an instant; but it's harder the other way around.

Yeap Kirsty agree with NA, we have done exactly this, kept a sum of money out in case ever need extra cashflow, offset it against our mortgage, paying of mortgage as quickly as possible while we are on good incomes (of course you never know whats around corner) but got that cash there and can get it quickly just in case.

Yes, ours is offsetting against the mortgage (staying floating - can't see the point in fixing). Well, its not like we lose if we hold off paying off a chunk...its just accruing after all. We're just worried about how to survive whats coming with the least amount of damage so to speak - hubby just hopes the predictions of the rest of our lives in deflation/depression don't pan out!

Well if this gets as rough as I think, you will need some real cash, so I wouldnt put all of it on the mortgage, 3months cash seems wise.....IMHO.  Otherwise I have reduced my debt as much as I can.  If this doesnt eventuate you can go back to the bank and withdraw it again.

My biggest worry is that if you keep large sums in a bank and have a mortgage and the Govn decides to um "borrow" it off you or the bank goes toes up you could lose that money....or at least see it frozen....if you have paid off the debt, it cant be "stolen" off you. Im not aware of any method the Govn or bank can force you to increase debt, directly anyway.

During the last Depression the US Govn took gold off ppl and gave them dollars, this could happen gold and silver needs to be in your hand, bought with cash and hidden IMHO. Next they can also devalue dollars, or change the notes making a cash hoard worthless, gold is a protection against that but I think its a serious bubble which may well pop....

Basically anything you look at to protect yourself financially is bloated and risky....


Steven I missed the chance to invest in Gold at $910 per ounce because it thought it was in a bubble :(

I realise now that it has only tracked with the commodity bubble in general, which has been the inverse of the USD. Yes it could take a dive, but I think the circumstances that collapse the bubble will see the price of gold hold.

A few things I have learnt in my self education, is that gold is a good investment in times of low interest rates. I don't see rises in interest rates as we have discussed before.

Someone said to me not long back that there are only three forms of investment, gold(or silver), equities, or property, which rotate in terms of viability. IMO you would have to be mad to be in shares or property, which leaves the metals. I would hope to trade my metal for property eventually.

If the government takes back the metals, it will have to be at a fair price, so that shouldn't be a problem. Your cash analysis is interesting.

If I were in Kirsty's position I would definitely keep the cash and or metals, so that if real estate tanks badly into negative equity they can just walk away and leave the problem with the bank. Pay cash for that gold though, as already advised.

Buy your gold sovereigns on trademe.  Buy some cheap electronic scales and a calipier. Sovs weigh 8grm each and are 22mm in diameter. 

Only buy ones you can pick up.  If they weigh 8grms or 7.9 and are the right diameter you will be buying gold and not a fake.

They were selling around $380 each last year.  Over $500 each now.  There is over $500 worth of gold in a sovereign at the moment.

You can store a lot of money in gold for the small volume it takes to store/hide.


Use your money as a deposit on a nice house with a garden and take advantage of low interest rates for a long time - enjoy your house  -  even when the global depression causes us to lose our jobs the banks don't really want to be landlords of our houses. 

That would be mad depression will mean house value drops of  50% or more.

Appreciate we are in a time of high volitility, nimble is the key IMHO....

Banks will sell from under you....if they get 50% of their money, you will still owe it the which case going bankrupt is your only option.


If you have a mortgage, the bank is already 'your landlord'; and landlords don't take kindly to not getting 'rent' for too long... before they 'give' the property to a new tenant.

Be carefull, i think that cash they are sitting on actually belongs to someone else.

Thanks to all above for comments..not needing more housing or  really wishing to bother with rentals.Just thinking best to spread around banks,some govt.bonds and perhaps some gold??How  would I go about getting Govt.bonds and gold?Not really in the know about these things.

In case you missed the post above.

Buy your gold sovereigns on trademe.  Buy some cheap electronic scales and a calipier. Sovs weigh 8grm each and are 22mm in diameter. 

Only buy ones you can pick up.  If they weigh 8grms or 7.9 and are the right diameter you will be buying gold and not a fake.

They were selling around $380 each last year.  Over $500 each now.  There is over $500 worth of gold in a sovereign at the moment.

You can store a lot of money in gold for the small volume it takes to store/hide.

Google kiwi bonds for govt stock. You can buy em at the bank.

Food for thought.

As I outlined above, part of my reasoning for removing my assets from bank is that they can't leverage it.

Really if you have cash in the bank, or a mortgage, then you are participating in the fraudulent money system.

Protest by withdrawing your money, or paying off your mortgage.

But is the leverage even greater than you realise? Yes, it is 9:1 for the banks, but the ratio of cash in circulation to electronic money is 63:1(it is fluid). So if you do have a million dollars in the bank and choose to withdraw it from the system, you are essentially removing 63 million from circulation. It won't take many people doing that to have a big impact.

 Did this once before,withdrew everything in cash three weeks before the govt.guarantee was put in place..not an easy feat either.Had to be arranged through bank with RB, then transported from RB with paid guard.

Haha I know what you mean, I have made the enquiries. You want to try USD.

Thanks for that David.

I might pursue the thought line a bit further about withdrawing from the banking system in protest at the fraudulent structure of it. 

It would be nigh impossible to withdraw completely just at the moment though.