New Zealand banks' vulnerabilities and capital adequacy / prepared by Byung Kyoon Jang and Masahiko Kataoka.

Title from PDF title page (IMF Web site, viewed Jan. 22, 2013).

The paper finds that, given New Zealand's conservative approach in implementing the Basel II framework, New Zealand banks' headline capital ratios underestimate their capital strength. A comparison with Canadian, UK and Australian banks highlights the impact of New Zealand's more conservative approach. Stress tests in the paper show that four large New Zealand banks could withstand sizable stand-alone shocks to their exposure to either residential mortgages (calibrated on the Irish crisis experience) or corporate lending. However, combined shocks to both residential mortgages and corporate lending would put more pressure on the banks' capital. Given high bank concentration and large offshore wholesale funding needs, the merits of higher minimum capital requirements for systemically important domestic banks could be considered, together with other measures to be implemented.

Includes bibliographical references.

"Asia and Pacific Department."

"January 2013."

Cover; Contents; I. Introduction and Overview; II. Key Features of the New Zealand Banking Sector; Figures; 1. International Comparison of Key Soundness Financial Indicators; 2. Bank Market Share in New Zealand; 3. New Zealand's Four Largest Banks: Tier 1 Capital Ratio and Risk Weight; 4. New Zealand's Four Largest Banks: EAD and Tier 1 Capital; Tables; 1. New Zealand's Four Largest Banks: Selected Financial Soundness Indicators; 5. Banking Sector Assets for Selected Countries; 6. Assets of Four Major Banks for Selected Countries; 7. Bank Asset Composition; 8. Household Debt.

9. Central Bank Balance Sheet Sizes10. Government Guaranteed Debt; 11. Total Short-Term External Debt; 12. Loans to Customer Deposits; III. Basel II Implementation and Capital Ratios; 13. Tier 1 Regulatory Capital Ratio; 14. Total Regulatory Capital Ratio; 2. Risk Weights for Banks' Internal Models Under the Basel II Capital Framework; 15. Tangible Common Equity to Risk Weighted Assets; 16. Tangible Common Equity to Tangible Assets; 17. Nonperforming Housing Loans; 18. Loss Given Default on Residential Mortgages.

3. New Zealand's Four Largest Banks: LGD for Residential Mortgages and Impact on Capital Adequacy Ratios19. Probability of Default on Residential Mortgages; 20. PD Range and Composition of Residential Mortgages; 21. Average Risk Weights for Residential Mortgages; IV. How Vulnerable are New Zealand Banks to Shocks to Residential Mortgages and Corporate Lending?; A. Shocks to Residential Mortgages; 4. New Zealand's Four Largest Banks: Risk Weight for Residential Mortgages and Impact on Capital Adequacy Ratios; 5. ANZ: Credit Risk Exposure; 22. Real Estate Prices in Ireland and New Zealand.

23. Capital Ratio Change6. Ireland: Four Large Banks' Residential Mortgages; B. Shocks to Corporate Lending; 7. New Zealand's Four Largest Banks: Impact on Capital of Shocks to Residential Mortgages; 24. Agricultural Debt to Agricultural Export Earnings; 25. Property Prices; 26. Export Commodity Price Index; 27. Sectoral Nonperforming Loans; 8. Credit Exposures by Portfolio Type; 28. Capital Ratio Change; 9. New Zealand's Four Largest Banks: Impact on Capital of Shocks to Corporate Lending; C. Combined Shocks; 29. Real Estate Prices in Recent Crises.

10. New Zealand's Four Largest Banks: Impact of Combined Shocks on Capital30. Core and Retail Funding Ratios; 11. Banking System Stress Tests' Assumptions; References.

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