Reserve Bank amends bank disclosure requirements

Ken Matthews, "Amendments to bank disclosure requirements", Reserve Bank of New Zealand Bulletin, Vol.68, No.1

Registered banks are required to publish quarterly disclosure statements covering a wide range of financial and prudential information. The Reserve Bank of New Zealand has made a number of changes to these requirements, which are discussed in this article.

Insurance business

The first of these changes relates to insurance business. The Reserve Bank has introduced a policy that limits the amount of insurance business a bank may have to no more than 1% of the assets of its New Zealand banking group. The rationale for this is that excessive mixing of insurance and banking activities would make the interpretation of financial disclosures more difficult and reduce the usefulness of capital adequacy. All registered banks are now required to disclose the amount and nature of insurance business that is conducted within their New Zealand banking groups.

Exposures to connected persons

The Reserve Bank sets limits on the exposures to connected persons that New Zealand incorporated registered banks may have, in order to prevent excessive de facto reduction of capital. The Reserve Bank has introduced a change from a standard limit to a rating-contingent limit. That is, the higher the credit rating of the bank, the higher the limit the bank is allowed. Banks are now also required to disclose, for example, the rating-contingent limit that applies to them, whether the limits have been complied with in the relevant quarter and, if not, the nature of the breaches. In addition, banks must disclose whether exposures have been calculated on a gross or a net basis.

Concentrations of credit exposures

All registered banks are required to disclose the number of exposures they have to individual counterparties that exceed 10% of the bank's equity. Banks must now also break down the aggregate of such exposures into three categories:

1. rated exposures that are of an investment grade;



2. rated exposures below investment grade; and



3. other exposures.

The intention is to disclose the financial strength of the bank's debtors and the number of them.

Branch balance sheet information

Overseas incorporated registered banks are now required to disclose the amount of retail deposits they have in New Zealand. This relates to the Reserve Bank's policy on local incorporation a registered bank must be locally incorporated if it has retail deposits in New Zealand exceeding $200million. In addition, registered banks must also be locally incorporated if their New Zealand liabilities, net of related party funding, exceed $10million.

Miscellaneous amendments

1. Banks must disclose their credit ratings.



2. Locally incorporated banks must disclose the name of each person who has an ownership interest of 5% or more or who can appoint 25% or more of the directors.

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