A loan which could be approved in 60 mins now takes 7 days thanks to regulations
The Reserve Bank’s capital requirements and other regulatory changes have been causing a significant drag on bank lending, according to accounting firm KPMG’s latest survey of financial institutions.
Wednesday, March 12th 2025, 6:02AM 
1 Comment
by Jenny Ruth
The smaller banks continue to complain that they have to apply more capital to essentially equivalent loans than the big four banks – while the four majors are able to use their own internal models to calculate capital requirements, the other banks have to use much more conservative standardised models.
“The most striking example mentioned by the smaller banks was the different capital requirements for a big four bank when lending the same loan to the same family, for the same house, in the same street simply because they were permitted to use different models to calculate the capital required.”
RBNZ’s changes to capital requirements have gone some way towards addressing those concerns.
Participants also perceived the RBNZ is running behind on implementing the Deposit Takers Act and the associated deposit insurance scheme which is due to come into effect from July 1.
“Key aspects of it still need to be revealed. There are also questions regarding whether regulators are effectively communicating with each other to ensure cohesive and comprehensive oversight,” KPMG said.
Participants also thought it was ironic that NZ regulators want a deposit guarantee scheme in line with other countries but that NZ also requires banks to hold much more capital than in other jurisdictions and the calculation of that capital is also more onerous, it said.
“Banks are often hesitant to lend to more challenging credits due to the need to maintain substantial capital reserves.”
KPMG noted that Australian banks “enjoy more favourable capital ratios – both the quantum required and its calculation,” making the much bigger Australian market a more attractive country for the banks to invest.
That means the increasing amount of capital NZ banks have to hold – the big four have until June 30, 2028 to effectively double their common equity compared to pre-2020 levels – is most likely to come from bank profits.
“Consequently, this will result in bank business models that drive higher lending rates for borrowers and decreased interest rates for depositors, negatively impacting local customers,” KPMG said.
Much longer approval times
“During simpler times before the 2000s, approving a loan could be achieved in approximately 60 minutes,” according to one banker.
‘In stark contrast, today’s approval process can take up to seven days, reflecting the comprehensive risk assessments and diligent compliance measures now required. This shift underscores the significant regulatory burdens banks face.”
Regulation was one of the most commonly discussed topics in KPMG’s survey “and how it still has not been appropriately balanced between keeping customers safe and providing for and encouraging innovation,” the firm said.
“Participants felt that whilst New Zealand regulators are making efforts to improve regulation, unfortunately there remains ongoing uncertainty regarding the government’s actions” on the Credit Contracts and Consumer Finance Act (CCCFA) and the Financial Markets (Conduct of Institutions) Amendment Act (CoFi), it said.
“Whilst all participants applauded the recent changes to the CCCFA, which incidentally was affectionately referred to by many as the best example of the worst regulation in the world, they also noted that the changes that had been made did not come without some challenges,” it said.
“They have required significant changes to bank systems and further training of bank staff. Even the good news seemed to have a reasonably significant cost attached to it to implement.
Participants welcomed the changes but said they still had “less than ideal guidance,” KPMG said.
“We heard two of the key concerns that are yet to be addressed or rectified are around the level of director liability and the lack of a safe harbour provision for self-reported and rectified matters,” it said.
“Key concerns, such as the complexity of compliance requirements and the administrative burden on lenders, are also yet to be fully addressed.”
The perceived or actual costs of a minor breach “can result in disproportionately large fines, causing banks and other financial institutions to be more cautious,” KPMG said.
That has led to a noticeable tightening of lending criteria, making it more difficult for borrowers to access credit, it said.
“This has had a ripple effect on the broader economy as it slows or stalls growth.”
High compliance costs have disproportionately impacted on the smaller banks, “potentially reducing competition in the banking sector.”
| « Heartland launches a bridging loan to finance retirement village purchases |
Special Offers
Comments from our readers
Sign In to add your comment
|
|
Printable version |
|
Email to a friend |
