Kiwibank loses fight with Reserve Bank
Tuesday, 30 May 2017
Kiwibank has lost its fight with the Reserve Bank over the validity of its capital notes.
The Reserve Bank has confirmed that two capital instruments issued by Kiwibank no longer qualify as regulatory capital, under the central bank's capital adequacy framework.
Banks are required to have a set level of capital at all times to offset their lending activity.
The instruments in question are the bank's tier two convertible subordinated bond, issued on June 6, 2014, and its additional tier one perpetual bond, issued on May 26, 2015.
READ MORE: Reserve Bank spat forces Kiwibank to ask shareholders for $247m
The bonds back the capital notes and perpetual capital notes issued by Kiwi Capital Funding.
Kiwibank said it would not seek early repayment of the two securities but would assess the quantity and mix of capital required to supports its operations and meet regulatory and rating agency requirements.
When the Reserve Bank made clear its preliminary view in March, shareholders NZ Post, ACC and NZ Super Fund injected $247 million of equity into the bank to ensure that its capital position was sound.
Changes made by Kiwibank in an effort to address the concerns raised are still being reviewed by the Reserve Bank.
Banking expert Claire Matthews, of Massey University, said it was likely that other banks were in the clear, otherwise they would have been picked up by the Reserve Bank, too. 'I presume there is something different in the way Kiwibank has structured their [notes] for them to say 'no these aren't acceptable'. It just provides a lesson to other banks that if they are looking at doing something similar to what Kiwibank has done, don't do it.'
She said the equity from shareholders would be sufficient but the Reserve Bank's decision would still be a problem for Kiwibank. 'They had a plan and they have been thwarted. They'll have to think how do they get to whether they want to be in a way that's acceptable.'