The Royal Commission into financial services concluded in Australia last month, exposing a catalogue of misconduct by big banks and superannuation companies. The final report, which may lead to criminal or civil prosecution for the banks, also recommends widespread changes to the industry. The feeling in Australia is that the changes will just mean more pain for businesses.
While the New Zealand regulator is unlikely to adopt Australian changes in full; in NZ businesses are facing their own challenges thanks to the Reserve Banks’ proposed changes to capital adequacy requirements.
In December last year the Reserve Bank of New Zealand proposed changes to nearly double capital requirements of the banks to help prevent a failure if there was a major shock to the banking sector. Banks are currently required to hold at least 10.5 per cent of risk-weighted assets in different types of capital and the central bank is proposing to lift that to 18 per cent for the big banks and 17 per cent for all other banks.
How could this affect SME’s?
According to Swiss Bank UBS, New Zealand Banks (and in particular those with Australian Parents); “may look to (1) re-price; (2) ration credit; (3) undertake corporate/institutional business via Australia; (4) de-merge NZ subsidiaries,” in order to meet the requirements.
Moves like these could well have a broad impact on the New Zealand economy and business community. The likelihood is that small to medium enterprises will again bear the brunt of any move on repricing or rationing of credit by the banks.
In fact, the compounding pressure being placed on the banks by the Capital Adequacy Proposal as well as the fallout of the Banking Royal Commission in Australia, and the Financial Services Legislation Amendment bill currently sitting before Parliament, could impact significantly SME’s access to finance.
How should SME’s respond?
For SME’s operating in Australia & New Zealand in the current climate, our feeling is that businesses should continue be entrepreneurial, to leverage what they have, and look for the most effective ways to access capital and assist cash flow.
Stay informed about the changes in the industry, seek advice and look beyond the banks find a solution that is right for you and your business.