New Zealand central bank cuts bank capital requirements to ease costs

New Zealand's central bank has announced a reduction in some capital requirements for the country's banks, following a review of rules introduced in 2019, while maintaining standards above international norms.

The Reserve Bank of New Zealand said the nation's four largest Australian-owned banks will now be required to hold 12% common equity tier 1 capital, down from 16%, while tier 2 capital will rise to 3% from 2%, and internal loss-absorbing capacity will be set at 6%.

Smaller banks will see total capital requirements cut to 14% from 16%.

The RBNZ estimates the changes will lower average funding costs by 12 basis points and deliver an expected annual net benefit of 0.12% of GDP.

The move comes after criticism that the previous rising capital requirements could push up interest rates and slow economic growth.