By Amanda Morrall
Just how safe is money in the bank given the prospect of a eurozone break up? And will New Zealand, at the bottom of the world, be any better off for its remoteness from the cancer at the core of the sovereign debt crisis?
New Zealand banks are generally believed to be in better shape than most, given tighter lending regulations and also the security afforded them by their Australian parents, but what about foreign banks operating in New Zealand?
Rabobank, the European bank with the largest presence in this country, has more than NZ$3 billion in Kiwi retail deposits which has more than a few wondering just how safe money in the bank really is.
We received the following email from a reader and thought we'd tackle it as a wider story:
"I have a large sum of money on a one-year term deposit with RaboBank maturing 31st March 2012. I am watching events in Europe with concern - is RaboBank in any danger of collapse of some sort, or can I rest easy ?''
As financial journalists, we cannot offer any advice, however we can share our knowledge and understanding of how the situation in Europe could potentially impact financial institutions and retail deposits that are domiciled here.
Interest.co.nz banking and finance editor Gareth Vaughan, who interviewed Rabobank's global CFO Bert Bruggink earlier this year, suggests Rabobank, despite a recent downgrade, is better placed than most to handle any shrapnel from a eurozone break up. (See Gareth's article from an interview with Bruggink here).
"Rabobank has a reputation of being one of the most conservative banks in Europe, if not the world,'' said Vaughan, of the Dutch cooperative which has its roots in the farming and agriculture sector.
Relative to other banks, Rabobanks' exposure to Europe's most financially vulnerable nations (Portugal, Italy, Ireland Greece and Spain) is relatively minor; US$400 million.
"To put that into context, the group has about €269 billion worth of assets, so it's exposure to that part of the world is very small,'' said Vaughan.
"If you look at some of the French banks, like Credit Agricole, they have subsidiaries, or stakes in banks in Greece, Spain, and Italy, so they are much more exposed to that part of the world than Rabobank.'' See Gareth Vaughan's article on Credit Agricole's bond issue in New Zealand.
Despite its downgrade from AAA to AA, Rabobank remains one of the most highly rated privately owned banks in the world making it among the least likely of banks registed in New Zealand to fail, adds Vaughan.
"In short if the worst was to happen to Rabobank frankly there wouldn't be much left of the European banking sector.''
The reason for the downgrade had less to do with Rabobank's financial operations and more to do with Standard & Poor's rating system, Vaughan adds.
"Basically Standard & Poor changed the way they rate banks,'' explained Vaughan. (For more on the downgrade click here).
"They're saying that the neighbhorhood where the bank operates is more important than they were previously given credit for. Whilst a downgrade is still a downgrade I wouldn't be too worried about it.''
As well as holding NZ$3 billion in New Zealand deposits, Rabobanks has about NZ$8 billion in loans to New Zealand farmers on its books.
As a rural specialist, it has been one of the fastest growing lendors in the primary sector. (See interest.co.nz reporting on Rabobank's last disclosure statement here).
According to interest.co.nz's leverage tables, measuring assets versus shareholder funds, Rabobank comes in second place behind ANZ, with assets exceeding shareholder funds by 11.8 times. It's lending to the rural sector has grown over NZ$400 million in the September quarter from the June quarter.
A potential vulnerability is Rabobank's disporportionate exposure to the wine sector, which has suffered through the global downturn.
As a New Zealand registered bank, Rabobank is regulated by the Reserve Bank of New Zealand and therefore subject to the same capital requirements and rules as other New Zealand-based banks.
With the Government Guarantee scheme on retail deposits all but expired, investors nervous about the days ahead -- rightly or wrongly -- shouldn't expect any safety net.
The extended retail deposit guarantee scheme, due to end Dec.31, covers four remaining companies: Heartland, Fisher and Paykel Finance, Wairarapa Building Society and, PGG Wrightson which was taken over by Heartland recently.
Vaughan said Fisher and Paykel and Wairarapa Building Society stopped taking deposits covered by the guarantee some time ago and Heartland (for which the scheme basically exists now) is also steering people away from the Guarantee.
"They are talking confidently that they are well prepared to deal with it,'' he adds. See more on this here.
Financial stress tests, which would appear imminent for New Zealand banks, might also offer some assurances for depositors or at least some guidance as to the safety of banking institutions across the board. See Gareth's article on stress tests.
Bank regulators on both side of the Tasman cooperate sporadically on so-called stress tests and banks do their own tests ones as well, notes Vaughan.
"We had some reports out of Australia that the Australian Prudential Reuglation Authority is doing some pretty strident tests on the big Aussie banks because of the concerns about what's happening to Europe and how that could roll on to hit Australia via China their key trading partner. RBNZ does tend to partake in these tests and ANZ, ASB, BNZ and Westpac are obviously subsidies are big four Aussie banks so it's fairly safe to assume the RB will be taking part in the Australia stress testing."