Capital requirements for banks in New Zealand

Current requirements

Capital ratios

Locally incorporated registered banks in New Zealand must comply with the following minimum capital ratios, which are calculated as the amount of capital that must be held in relation to risk-weighted exposures (including market and operational risk).

• A Common Equity Tier 1 capital ratio of 4.5% - CET1 is the highest quality capital and must be permanently and freely available to absorb losses. It includes ordinary shares and retained earnings.
• A Tier 1 capital ratio of 7%.
• A total capital ratio of 9%.

Registered banks must have a prudential capital buffer (PCB), completely made up of Common Equity Tier 1 (CET1) capital, over and above the minimum requirements listed above. For Domestic-Systemically Important Banks (D-SIBs) this PCB must be 5.5%, which has applied from 1 July 2025. All other banks must have a PCB of at least 3.5%.

We impose a condition of registration on a locally incorporated registered bank that restricts its CET1 capital distributions by varying amounts when its PCB ratio falls below the levels described above. Since 1 July 2025, the following restrictions have applied to D-SIBs:

Qualifying capital

From 1 October 2021, the rules for qualifying capital instruments are set out in BPR110: Capital definitions. These rules are the outcome of our 2017 to 2019 Capital Review and include a number of changes to simplify the system and ensure banks have high quality capital.

BPR110: Capital definitions is available on the capital and credit risk requirements page.

There are two tiers of qualifying capital:

• Tier 1 (split into Common Equity (CET1) and Additional Tier 1 (AT1) capital)
• Tier 2 capital (a form of subordinated debt).

The processes banks must follow for issuing AT1 and Tier 2 capital instruments are set out in BPR120: Capital adequacy process requirements.

From 1 October 2026, banks will no longer be able to issue any capital instruments that would count as AT1 capital.

BPR120: Capital adequacy process requirements is available on the capital and credit risk requirements page.

Note: Our 2019 Capital Review decisions removed the conversion and write-off features in the previous capital framework for New Zealand.

Exposures

Locally incorporated registered banks in New Zealand calculate their exposures based on the Basel 2 framework and risk weight those based on a range of specified rules. This framework is set out in Basel 2: International Convergence of Capital Measurement and Capital Standards: A Revised Framework on the Bank for International Settlements’ website.

Basel 2: International Convergence of Capital Measurement and Capital Standards: A Revised Framework

Pillar 1 of Basel 2 involves calculating the minimum capital requirements to cover credit risk, market risk and operational risk. Credit risk is determined through the calculation of risk-weighted exposures.

The Basel 2 framework has applied to locally incorporated New Zealand banks since the first quarter of 2008. Under Basel 2, banks may, if accredited, use the internal models-based approach to calculate their capital requirements; otherwise they must use the standardised approach. This approach is also known as the internal ratings-based (IRB) approach, and accredited banks are sometimes called ‘IRB banks’.

For banks registered as branches in New Zealand, Basel 2 developments have disclosure implications only.

The overarching approach is set out in BPR100: Capital adequacy and BPR130: Credit risk RWAs overview.

BPR100: Capital adequacy and BPR130: Credit risk RWAs overview are available on the capital and credit risk requirements page.

Banks accredited to use the IRB approach are subject to an ‘output floor’ from 1 January 2022. This means their estimates of risk-weighted assets (RWA) will be either the outcome of their IRB models, or 85% of the standardised outcome, whichever is highest.

ANZ Bank, ASB Bank, Westpac New Zealand (Westpac) and Bank of New Zealand (BNZ) have been accredited to use internal models for credit and operational risk. So that these four banks can retain their accreditation status, they must comply with a number of ongoing accreditation requirements (for example, a bank is required to advise us of any significant changes to its models or estimates).

BPRs supporting documents

In addition to the specific requirement documents listed above, the BPRs include the following supporting overview documents:

• BPR100: Capital Adequacy
• BPR110: Capital Definitions
• BPR120: Capital Adequacy Process Requirements
• BPR130: Credit Risk RWAs Overview
• BPR001: Glossary

These documents are all available on the capital and credit risk requirements page.

Transitional capital arrangements

Below are specific (superseded) versions of Banking Supervision Handbook documents referred to in BPR110: Capital definitions.