Proposed regulations could mean a murky future for funding in NZ

The borrowing capabilities of New Zealand businesses could be severely impacted by proposed regulatory changes on both sides of the ditch.  According to many commentators, we may see a reduction in capital from the banks as well as a potential increase in rates for those able to secure funding.

In recent weeks, The Reserve Bank of New Zealand (RBNZ) has made calls to ramp up capital levels and increase scrutiny of Australian owned financial institutions in New Zealand.  The RBNZ’s proposal would see NZ banks hold double the amount of capital to guard against any significant crisis.

In addition to this, The Australian Prudential Regulatory Authority (APRA) is considering reducing the exposure of Australian banks by limiting the amount of capital they send overseas to 25% (down from 50%), this includes their New Zealand banking operations.

In a statement ANZ outlined that the APRA changes would limit its ability to inject capital into NZ and would force it to retain earnings in order to meet its obligations in Australia.  This view is held by the other Australian parent banks, who have all made their opposition clear, warning that it would be necessary to limit lending and increase borrowing costs.

Westpac stated; “The cost of the proposals, and the impact on the economy, have been significantly underestimated” by the RBNZ, and that consumers could be driven away from “strong, safe banking”.

While there is support for the proposed raise in capital requirements within New Zealand, many are viewing the Big Four Australian owned banks with suspicion due to the huge profits sent back to shareholders at home.  If these proposed regulations come to pass, the impact will be felt across the whole lending sector likely affecting mortgages as well as personal and business loans.

There is also a suggestion that smaller Kiwi-owned banks may be disadvantaged too, with a joint submission from Kiwibank, SBS, TSB and The Co-operative Bank stating;

“We have concerns that proposed changes will widen rather than reduce the competitive gap between large and small banks.”

Without overseas funding from parent banks to fund them, the feeling is that the RBNZ should allow the NZ owned banks to hold a wider range of assets in order to increase their capital. They also made it clear that any regulations should be phased in over eight years rather than the proposed five.

How could this impact SME’s?

Regulatory changes such as these have the power to severely impact the funding options available to SME’s.  With the cost of finance likely to increase across the board, SME’s will need to look to alternative funding sources for their business.

We are potentially heading into murky water here.  It is certainly a good time for SME’s to look at their financing options and see if there is an alternative that could better suit their business model.

Invoice finance should definitely be considered within this mix.  Using invoice finance to leverage accounts receivable is a great way for businesses to access the funds from their own invoices faster.  This means payment times are shortened, money is delivered back into the business sooner, smoothing out cashflow.  In addition, by leveraging their own assets, the business is not taking on debt.

The final decision regarding capital requirements in New Zealand will be released in November.  For more information on how an invoice finance facility could help your business thrive and grow contact Apricity.