New Zealand banks 'robust, well regulated and well capitalised' Bankers' Association says despite tough international backdrop

By Gareth Vaughan and Alex Tarrant

The New Zealand Bankers' Association (NZBA) says this country's banks are "robust, well regulated and well capitalised" against the backdrop of global financial market tensions, as Finance Minister Bill English travels to the US to get an update on what direction global economic policy makers are heading in.

Tensions in global financial markets have risen in recent weeks as it becomes more likely the Greek government will have to default on its debt, owed largely to European banks. Ratings agency Standard & Poor's has just downgraded Italian government debt, leading to renewed concerns that global wholesale funding lines, which New Zealand's banks rely on for a third of their funding, could tighten as markets react negatively to the developments.

English and Prime Minister John Key have warned that financial markets may lump New Zealand into their list of small, highly indebted nations they do not want to lend to if the European crisis were to blow up further. The difference between New Zealand and the European periphery nations, however, was that a large proportion of New Zealand's international liabilities were held by the private sector, while a smaller amount was public debt - something English will be pointing to global financial market participants throughout his trip.

Key warned yesterday that the overhang of private debt in New Zealand could still lead to problems for New Zealand, as financial markets, as well as Standard & Poor's, were increasingly lumping private and public debt together due to government tendencies around the world to bail-out private sector financial institutions.

'Our banks are strong'

In a brief statement, the NZBA, whose members include ANZ New Zealand, ASB, BNZ, Westpac and Kiwibank, said local banks were well positioned and strongly capitalised.

“Our banks’ strength lies in the fact that they are well capitalised and regulated,” NZBA chief executive Sarah Mehrtens said.

New Zealand banks all meet international standards, she added, and Reserve Bank requirements based on international agreements.

"The capital adequacy ratio mandated by the Reserve Bank is 4% for tier one (capital) and 8% for total qualifying capital. On average, New Zealand’s major banks’ capital holdings exceed the required tier one and total qualifying capital ratios by 5.96% and 4.80% respectively," said Mehrtens.

A spokesman later confirmed that meant the ratios were 5.96 and 4.8 percentage points above the respective requirements, and that this was for the four major banks, ASB, ANZ National, BNZ and Westpac.

“Our banking system is robust and well regulated, and served us well during the global financial crisis. Our banks did not get caught up in the debacle that many of the international banks are now facing. We need to stay focused on striking the right balance between lending and growth on the one hand, and safety on the other,” Mehrtens added.

Asked if there was any particular reason the NZBA had released the statement today, a spokesman said the release was designed to "provide some useful background" to Finance Minister Bill English and Reserve Bank Governor Alan Bollard’s trip to the United States.

English leaves today for New York and Washington DC, where he will visit the World Bank and International Monetary Fund, and meet Federal Reserve chairman Ben Bernanke. English will attend the World Bank board of governors' annual meeting and hold discussions with business, financial market and government representatives.

“This visit is timely, in light of economic and financial market events around the world in recent months,” English said in a statement.

“In particular, ongoing concern about debt in Europe and the United States reinforces the need for New Zealand to press on with its programme of building faster growth around savings and investment, with less reliance on borrowing from foreign lenders. I’m looking forward to meeting a number of other finance ministers at the World Bank including the Chinese Finance Minister Xie Xuren," English added.

“Given the economic uncertainty and volatility we’ve seen in Europe and the United States this year, it’s important that New Zealand continues to engage with its trading partners and share ideas on managing common challenges.”  

The Reserve Bank generally doesn't comment on Bollard's movements.

Expecting pessimism to rule

Speaking to interest.co.nz before he left for New York on Tuesday, English said he expected the mood among EU and US policy makers to be pretty gloomy. Discussions would be helpful for the government in terms of getting an idea on the directions those policy makers from New Zealand’s largest trading partners were looking to take. English was most interested in policies that would affect the currency.

“We don’t have a lot of influence on the US or EU policy makers, but it is very important to listen to them so we can get a measure of how likely it is that they will solve those problems and whether it makes any difference to us what solutions they come up with,” English told interest.co.nz.

There were people and organisations who the government needed to keep up to date, with English doing the rounds of the credit rating agencies and the IMF to make sure the interested parts of financial markets were clear on where New Zealand stood, he said.

English was also looking forward to meeting Bernanke.

“We’re interested in where he’s headed with the policy that affects us directly, and that is focused mainly on the currency. I doubt that he’ll say too much that’s surprising, but it’s always good to get it from the horse’s mouth,” English said.

He would also meet the Chinese Finance Minister, with whom similar issues would be discussed.

“Although they’ve got a different currency problem – we’ll find out how much they’ll let theirs appreciate and how much Bernanke’s going to depreciate the US dollar, basically that’s what it comes down to for New Zealand,” English said.

“Both of those are big drivers of our economic prospects, and that’s why I’ve been keen to meet with the main US and Chinese policy makers,” he said.

“It influences our policy because we can make some judgments about what we expect the impacts will be, and that’s why it’s worth talking to the people actually making the policy in the US and China.”

'Still worries about NZ's private sector debt'

Prime Minister John Key at his post-cabinet press conference on Monday said the visit was a standard one for the government. Although the government was in a good shape financially, financial markets were still concerned about New Zealand's private sector debt, he said.

“[Bill English will] be there to take the temperature of the international markets,” Key said.

“What we know is that the effect of the European debt crisis and the implications of the debt ceiling not being initially met in the United States has really sent quite a shot across the bow of the international financial markets, and that’s had some implication on our capacity to raise money,” he said.

“My understanding is that’s coming back. From New Zealand’s point of view the good news is the Debt Management Office pre-funded very significantly its requirements, so there’s no great pressure on us. Markets were better for us late last week than they were in the early part of the week. It’s just a matter of them continuing to test the waters and talk to international lenders.”

From the New Zealand government’s position, the Crown’s accounts were in “very good shape, and I think that would be acknowledged by most people looking at New Zealand,” Key said.

“We’ve got a clear plan to get back into surplus, our debt levels are considerably lower than the OECD average – about a quarter of that. We’re fairly well provisioned for the Christchurch earthquakes, our growth targets look robust and strong, in fact our domestic economy’s performing a bit better than people expect,” he said.

“There’s just no getting away from the fact that we have an overhang of this private sector debt that still worries the international markets, and so that’s one of the reasons why some rating agencies take a different view to others. When they look at the overall picture they still don’t like our net external liabilities on a total public-private perspective,” Key said in relation to Standard and Poor's move to put the government's credit rating on negative watch last November because of a global trend of governments bailing out companies in the financial sector.

(Updates with comments from English, Key, video of Key).

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20 Comments

So Bill English is still saying we are going to transform into an economy driven by "savings & investment"...but all they've done is tweak the system with the "tax switch"...

From the New Zealand government’s position, the Crown’s accounts were in “very good shape, and I think that would be acknowledged by most people looking at New Zealand,” Key said.

How can I put this without getting my comment censored for being libelious?

Key's proposition that the Crown’s accounts were in "very good shape" seriously misrepresents the situation and will not stand scrutiny if challenged.

The Crown’s accounts are not in good shape, have deteriorated significantly over the last three years, and will continue to deteriorate with the government's borrow and spend policies (keeping up entitlements).

I am sick of the lies.

Only one thing for it then Colin, you're going to have to dumb down heaps to reach the level of most Kiwis..then the lies will pass you by and life will seem ok again.

It's a simple toss up between one lot who are " do gooders " , and who think that you should change everything , and live your life correctly ( as they would do , if they had the time , but are currently too busy trying to show you plebs how ignorant & " common " you are ) .. .. ..

.. . .. and the other lot who don't givea rat's arse about you city idiots , as long as our mates in Fletcher Building ,  AMI , Fonterra et al are OK ..... ... she's sweet .

... one is NZ Labour & the other is National , and I'm giving absolutely no bail-outs nor profit-free sections to you if you guess it correctly .....

But a few Gummy-panadols may be on the way ..........

Hi. I have replied to both you and Wolly, but it is here:

http://www.interest.co.nz/news/55509/new-zealand-banks-robust-well-regul...

Colin, you put up this link only last week, forgotten already?

 

http://www.oftwominds.com/blogsept11/perception-management9-11.html

 

 

A number of euphemisms are used for the concerted Status Quo effort to convince the public to maintain their belief in faltering institutions and a debt-based consumerist economy. The most neutral euphemism is "persuasion," followed by the slightly more sinister "shaping the context" and "setting the agenda." More directly, the effort is known as propaganda.

Perhaps unsurprisingly, perception management is a psychological-operations (psych-ops) term of Pentagon origins. The basic mechanisms are classic propaganda techniques. From the Wikipedia entry:

There are nine strategies for perception management. These include:

Preparation — Having clear goals and knowing the ideal position you want people to hold. 
Credibility — Make sure all of your information is consistent, often using prejudices or expectations to increase credibility. 
Multichannel support — Have multiple arguments and fabricated facts to reinforce your information. 
Centralized control — Employing entities such as propaganda ministries or bureaus. 
Security — The nature of the deception campaign is known by few. 
Flexibility — The deception campaign adapts and changes over time as needs change. 
Coordination — The organization or propaganda ministry is organized in a hierarchical pattern in order to maintain consistent and synchronized distribution of information. 
Concealment — Contradicting information is destroyed. 
Untruthful statements — Fabricate the trut

What amazes me is that people think this is a new thing. I saw what was going on decades ago and acted accordingly.

So, when can we expect to see the results? Will it show up as current government's discovering integrity, or their replacement by completely new political parties?

It will show up when enough people discover the system is flawed and will never deliver them a good result.

A re-read of George Orwell's Nineteen Eighty-four might suggest that people knowing the system is flawed will not enough to change it.

Yes fair point, but I have learned that I am not one to become a catalyst for change. It will take someone with considerable leadership skills to do that. Unfortunately I don't see anyone like that on the horozon, which not only required the ability but the will to do so. So the likely outcome is a slow slide downhill. That isn't necessarily a problem if you know it is coming and are prepared for it:)

What will help is when people also adjust their expectations for the future. That process will be easier if you accept the fact now, rather than having it forced upon you.

I have posted before about the work of Christopher Alexander and his book(s) A Timeless Way of Building. Governance starts to lose its accountability once the level of representation goes over 1:10,000.

 

Yes, we keep coming back to a problem of leadership deficits.

I think it may be time I did a U turn on leadership deficits. Reflection on a number of comments including four on this thread have influenced my change in thinking.

Wolly's comment on how life would seem O.K. if I was to dumb myself down prompted me to consider how we have been dumbed into believing the answer lay in "leadership" - more of it, and/or of forms less incompetent, less corrupt or stronger.  In effect we have been conned into a leadership dependency. The sight of media people hanging on the words of politicians, economists and bankers demonstrates this dependency well. 

Gummy Bear Hero and Andrewj illustrated that what passes as leadership is a mix of propaganda and generally poor management - people who need constant marketing advice on what to say, and directions (call it media relations or policy advice if you prefer) on how to maintain illusions and the status quo.    

Scarfie pointed out that he couldn't see anyone on the horizon with the leadership skills to bring about change. That is a pertinent point and unlikely to improve - good leaders are rare and exceptional.

So where has my U turn taken me to?

  • An understanding that we have a surfeit of propaganda managers - layers of them, appointed or elected, who believe that winning the selection process makes them leaders. As such they are a deadweight on society/the economy and a large part of the problem
  • A belief that the answer to my perceived leadership deficit is not in waiting for, or trying to find, leadership (99 times out of 100 leaders are the problem) but in
  • Breaking that leadership dependency (think of most leaders as propaganda managers), doing far more including thinking for ourselves, and learning to get by with far fewer, and fewer layers of, elected politicians/bureaucrats/CEOs/board members/senior management.

  

 

Nailed it Colin

Now your talking, I have been doing that on a personal level for over 20 years:) I accepted long ago that I didn't need any bastard telling me what to do, or how to live my life, spend my money etc.

So how do we reduce those layers Colin?

I reckon the problems to go into rapid reverse the moment you drag one of them out for a public flogging. Lol.

Our politicians are totally Poll driven, I hadn't thought about it much untill I talked to a friend this afternoon. I don't know how to change it.

The answer is different for each but hinges on prudence and thrift at the family/personal level because this is not what we are getting on the Kiwi macro scale...Avoid the loans...pay down the debt...buy only what you need...get the veg garden going strong this spring...buy those chooks...collect your mates and buy a Predator to do some real fishing..clean the rifle out and get with the hunting...rip out the gas heater shite and put in a woodstove...look after the old heap cos you need her to go hunting and fishing.....!.

We have a clear plan to get back into surplus... our growth targets look robust and strong... considerably more robust and strong when compared to those of the IMF... shows what they know.. chortle chortle... JK RULES!

How's the drive to discover the upstanding honest trustworth citizens going Parky?