Printer Friendly

For the record: recent news releases.

Investment and borrowing risks higher than realised

14 October 2003

Reserve Bank Governor Alan Bollard this evening warned that too many New Zealanders are taking higher risks than they realise in the way they borrow and invest.

That's come in an address prepared for an Auckland Club and MBA business meeting in Auckland.

Dr Bollard said that the Reserve Bank was concerned because of potential downsides for households, the financial system and the economy, New Zealanders, he said, were taking these risks "... because they don't understand that investing in a low inflation environment may be quite different from investing in the high inflation environment of earlier decades."

"I suspect that too many households may be over-exposed to real estate investment, and that too many are becoming increasingly exposed to relatively high risk financial investments, without fully appreciating the risks involved. Also, there are some risks relating to the extent of borrowing being undertaken by households.

"Unsound investment and borrowing decisions can have severe consequences for individuals and families. Households with high levels of debt and exposure to investments that are riskier than they appreciate could potentially face painful problems. Some may find that the rate of return on their investments is considerably less than they had though it might be, or even that their investments make a severe loss."

"In a world of low inflation, fluctuations in house prices can result not only in falls in real terms, but also falls in nominal terms. The risk for investors who borrow almost all of a house's sale price is that the value of the house could fall below the debt they owe."

Dr Bollard also warned that some people were investing in higher yield securities in the belief that lower nominal interest rates necessarily meant lower real returns and "In this drive to achieve higher rates of return, some investors may be taking higher risks than they appreciate."

Dr Bollard concluded by saying that investors should get professional advice and "It is important that investors take all the steps they can to better understand the nature of the risks attached to their investment and borrowing decisions. This includes thinking in terms of real rates of return, rather than nominal rates."

OCR unchanged

23 October 2003

The Reserve Bank has left the OCR unchanged at 5.00 per cent, this being consistent with inflation outcomes within the Bank's target range.

As noted in our September Monetary Policy Statement, the New Zealand economy has been enjoying strong economic growth, with robust domestic demand countering weaker conditions in parts of the export sector. Strong inflation pressures are evident in some industries, although these pressures have to date been largely offset by weaker imported inflation.

In saying that, the Bank reiterates that its headroom to absorb additional inflation pressures over the medium term is limited. The current market expectations of interest rates appear broadly consistent with this view as currently reflected in financial market prices. The Bank will continue to assess activity and inflation pressures accordingly, as new information comes to hand.

RBNZ consents to ANZ National Bank purchase

24 October 2003

The Reserve Bank today announced that it has consented to the ANZ Banking Group (New Zealand) Limited purchase of the National Bank of New Zealand Limited.

The Reserve Bank Amendment Act 2003 requires the Reserve Bank's consent to a purchase of more than 10 per cent of a bank registered in New Zealand.

Reserve Bank Governor Alan Bollard commented "This consent is subject to specific conditions which are laid out in Attachment 1 to this press statement.

"These requirements are aimed at reinforcing the Reserve Bank's bank local incorporation policy. We are aiming to ensure that the boards of locally incorporated registered banks have unambiguous legal authority and the practical ability to control all the functions, systems and management capacity necessary to operate on a standalone basis.

"We are also imposing an additional condition of registration on ANZ Banking Group (New Zealand) Limited, as set out in Attachment 2. This requires each registered bank in the ANZ group, as well as the consolidated banking group, to have a level of capital adequacy that is prudent.

"These steps are necessary given the Reserve Bank's statutory obligation to promote the maintenance of a sound and efficient financial system in New Zealand and to avoid the significant damage to the financial system that could result from the failure of a registered bank.

"Nothing in this formal consent over-rides the fact that, as conveyed in our 29 August 2003 letter (http://www.rbnz.govt.nz/banking/regulation/0139108.html) to the banking industry, the Reserve Bank is currently exploring the merits of a range of enhanced risk management requirements for banks, as part of our broader financial stability programme," Dr Bollard concluded.

Note that details as to what the Reserve Bank is required to consider in regard to a proposed bank purchase are outlined in Document BS9 at http://www.rbnz.govt.nz/banking/regulation/0094291.html.

Attachment 1

Conditions of Consent

1. Migration of business and out sourcing of functionality

(a) None of the transfers or changes described in paragraph (c) of this condition may be made except with the consent of the Reserve Bank.

(b) In considering any application for such consent, the Reserve Bank will take into account the extent to which the directors or a statutory manager of the National Bank of New Zealand Limited would have unambiguous legal authority and practical ability to control all the functions, systems and management capacity necessary to operate that bank on a standalone basis if the proposed transfer or change were implemented.

(c) The transfers or changes referred to in paragraph (a) of this condition are:

(i) any transfer to another entity in the ANZ banking group of all or a material part of any business (which term shall include the customers of the business) which is being carried on by any entity in the National Bank of New Zealand Limited banking group at the date of this consent;

(ii) any merger or amalgamation between the National Bank of New Zealand Limited or any subsidiary of that company and any other entity in the ANZ banking group;

(iii) any transfer or change by which all or a material part of the management, operational capacity and systems of any entity in the National Bank of New Zealand Limited banking group is transferred to, or is to be performed by, another entity; and

(iv) any other change in the arrangements by which any function relating to any business carried on by any entity in the National Bank of New Zealand Limited banking group is performed, which has or may have the effect that all or a material part of any such function will be performed by another entity.

2. Staff appointments

(a) No appointment of any director, chief executive officer, or executive who reports or is accountable directly to the chief executive officer, shall be made in respect of either ANZ Banking Group (New Zealand) Limited or the National Bank of New Zealand Limited unless:

(i) the Reserve Bank has been supplied with a copy of the curriculum vitae of the proposed appointee, and

(ii) the Reserve Bank has advised that it has no objection to that appointment.

3. Governance

(a) The management of The National Bank of New Zealand Limited by its chief executive officer shall be carried out under the direction and supervision of the board of directors of The National Bank of New Zealand Limited.

(b) The employment contract of the chief executive officer of the National Bank of New Zealand Limited shall be between the chief executive officer and the board of directors of The National Bank of New Zealand Limited.

(c) That any amendments to The National Bank of New Zealand's Limited's constitution have the prior approval of the Reserve Bank of New Zealand.

Attachment 2

Proposed condition of registration for ANZ Banking Group (New Zealand) Limited

The conditions of registration of ANZ Banking Group (New Zealand) Limited are varied by adding the following conditions as conditions 1A and 1B:

1A. ANZ Banking Group (New Zealand) Limited, being the registered bank, must at all times:

* Maintain a ratio of tier one capital to risk weighted exposures of at least 4 per cent; and

* Maintain a ratio of total capital to risk weighted exposures of at least 8 per cent.

For the purposes of this condition of registration, tier one capital, total capital and risk weighted exposures shall be calculated in accordance with the Reserve Bank of New Zealand document entitled: "Capital Adequacy Framework" (BS2), except that:

(i) all tier one and tier two capital instruments issued by The National Bank of New Zealand Limited must be deducted from ANZ Banking Group (New Zealand) Limited's tier one capital unless they are held by a person who is not a member of the ANZ Banking Group (New Zealand) Limited's banking group; and

(ii) where a deduction from tier one capital is required in terms of paragraph (i), no further deduction from total capital shall be required in respect of ANZ Banking Group (New Zealand) Limited's direct or indirect holding of that instrument.

1B. In its disclosure statements under the Registered Bank Disclosure Statement (Off-Quarter--New Zealand Incorporated Registered Banks) Order 1998, ANZ Banking Group must include all of the information relating to the capital position of both the registered bank and the banking group which would be required if the second schedule of that Order was replaced by the second schedule of the Registered Bank Disclosure Statement (Full and Half-Year - New Zealand Incorporated Registered Banks) Order 1998 in respect of the relevant quarter.

FSAP in NZ

31 October 2003

The Reserve Bank today said officials and consultants from the International Monetary Fund (IMF) are now in New Zealand undertaking a previously announced Financial Sector Assessment Programme (FSAP).

The FSAP is a financial systems surveillance programme spanning IMF member countries which was initiated in 1999 by the IMF and the World Bank in the aftermath of the Asian Crisis. For New Zealand the result will be a detailed evaluation of our financial system, to be published mid next year.

Subjects being assessed in New Zealand include banking supervision, securities market regulation, anti-money laundering frameworks, transparency arrangements applicable to monetary policy and financial sector regulation, and the financial system's resilience and capacity to withstand economic and financial shocks.

The Reserve Bank is co-ordinating the FSAP visit. During their stay, the eleven members of the IMF team will attend numerous meetings with policy-makers, regulators, officials and private sector participants in the New Zealand financial system. The bulk of these meetings will be with the Reserve Bank, the Ministry of Economic Development and the Securities Commission, with additional meetings also scheduled with the Takeovers Panel, the Government Actuary, directors and senior management of some banks, the New Zealand Stock Exchange, industry associations and others. FSAP representatives will also visit some parent banks in Australia and the Australia Prudential Regulatory Authority in Sydney. Discussions in New Zealand are expected to be completed on 18 November.

New Zealand is taking part to support the IMF's efforts to promote financial stability internationally. The programme also offers New Zealand the benefits of a thorough assessment by international experts of the New Zealand financial system and potential stress points in it. Although the programme is voluntary, there is an expectation that all 184 IMF member countries will be assessed about once every 5 to 7 years. So far about one third of the IMF's member countries have been or are going through this process.

An article entitled "Financial Sector Assessment Programme" in the March 2003 Reserve Bank of New Zealand Bulletin, Vol 66 No 1, pp 15-20 covers these matters in more detail. This can be viewed at www.rbnz.govt.nz.

RBNZ on ANZ purchase of National Bank

6 November 2003

The Reserve Bank today released an excerpt from a speech by Reserve Bank Governor Alan Bollard outlining the policy initiatives taken by the Reserve Bank in dealing with the application by the ANZ to buy National Bank. (1) The speech was entitled "After the National Bank acquisition: living with big Australian banks, and it was prepared for the Australasian Institute of Banking and Finance in Auckland.

Part-time external monetary policy advisor appointed

27 November 2003

The Reserve Bank today announced the appointment of Mr Terry McFadgen as one of the Bank's two part-time external monetary policy advisors.

The Bank employs two people to act as part-time monetary policy advisors to the Governor, their purpose being to bring outside perspectives to the Reserve Bank's decision-making processes. These appointments are for one year, with a possible one year extension, but no more than that, so as to keep their input "fresh".

Mr McFadgen has extensive commercial experience, having had a long involvement in the New Zealand residential and commercial property industries in both professional and executive capacities. Up until early this year he held a variety of senior executive posts with the Fletcher Challenge Group. He was Chief Executive of the Melbourne based Jennings Group Limited (an FCL affiliate) from 1990-1993, Head of the FCL Executive Office from 1993-95 and Chief Executive of Fletcher Building and subsequently Fletcher Forests.

Mr McFadgen is currently acting as Establishment Director of the College of Law New Zealand and is a consultant to the corporate sector in the areas of strategy and governance.

This appointment follows the completion of two years of service by Ms Kerrin Vautier. The other part-time external monetary policy advisor at present is Mr Malcolm Bailey.

OCR unchanged

4 December 2003

The Reserve Bank today decided to leave the Official Cash Rate unchanged at 5.0 per cent.

Reserve Bank Governor Alan Bollard commented "In saying that, small increases in the OCR may be required over the year ahead to ensure that inflation remains comfortably within the target range over the medium term.

"New Zealand's economy has continued to perform well in 2003, although growth has been seated in the domestic economy rather than the export sector, where earnings are under pressure from the rising NZ dollar. New Zealand's current account deficit is again building and some key asset prices appear to be moving beyond their sustainable level. The strong activity, especially in housing and construction, spurred by rapid population growth and high consumer confidence, has produced quite intense inflation pressures in parts of the domestic economy.

"Despite the domestic inflation pressures, CPI inflation has fallen over the past year largely due to falling import prices. Although the immediate outlook for the exchange rate is uncertain, the sharp falls in import prices seem unlikely to be sustained. CPI inflation is therefore expected to lift over the next year or so, driven by underlying domestic inflation pressure. Slower population growth and the flow-on effects of weaker export activity will help to limit inflation pressures, although a modest increase in the OCR may be required to keep inflation comfortably within the Bank's inflation target as defined in the Policy Targets Agreement.

"As always this assessment is subject to change as new economic data emerge. We will pay close attention to the path of the domestic economy, which has proven more robust over 2003 than we expected. We will also be closely monitoring the path of the New Zealand dollar, with a particular focus on what it means for the export sector and the medium-term path of inflation.

(1.) Reproduced in this Bulletin on p. xx.
COPYRIGHT 2003 Reserve Bank of New Zealand
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2003 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:News Releases
Publication:The Reserve Bank of New Zealand Bulletin
Geographic Code:8NEWZ
Date:Dec 1, 2003
Words:2578
Previous Article:Reserve Bank discussion papers: this section sets out the abstracts of recently issued Reserve Bank discussion papers. The discussion papers are...
Next Article:Editor's note.
Topics:

Terms of use | Privacy policy | Copyright © 2021 Farlex, Inc. | Feedback | For webmasters |