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Your bank's disclosure statement: what's in it for you?
All registered banks operating in New Zealand are required by law to publish a 6-monthly disclosure statement.This page explains why these statements are important, what information they contain and some of the main terms they use.
Why banks must publish disclosure statements
We administer banks' financial disclosure requirements in our capacity as prudential regulator and supervisor of registered banks. We require banks to publish disclosure statements for two reasons:
- to strengthen the incentives for them to maintain sound banking practices
- to help depositors and other investors make well-informed decisions on where to put their money.
Why you should know your bank's financial strength
Placing your money with a bank is an investment decision that exposes you to risk, even if that risk is usually relatively low. It is therefore important that you take an interest in the financial condition of your bank and how it manages its risks.
Banks' disclosure statements are intended to help your bank customers understand more about the financial condition of banks operating in New Zealand.
What is a bank disclosure statement?
A bank’s disclosure statement contains a wide range of financial and other information. It is aimed at providing a broad and reasonably up-to-date view of the bank.
It includes information on the bank’s conditions of registration, which is how we apply prudential requirements on banks; for example, requirements for banks to hold a minimum amount of capital.
The disclosure statement at a bank's end of year contains more comprehensive information than the half-year statement.
Overseas banks with branches in New Zealand
Banks that are incorporated overseas and are registered to operate a branch in New Zealand must make the financial statements for their overseas banking activities as a whole, readily available in New Zealand. This is in addition to the disclosure statement covering the operations of their New Zealand branch.
Assessing a banks' financial strength
There are two information sources to help you assess the financial strength of your bank: our Bank Financial Strength Dashboard and bank disclosure statements.
Our Bank Financial Strength Dashboard provides key information on the financial strength of all New Zealand-incorporated banks and is updated quarterly. It includes explanatory videos and text on the meaning and significance of each of the items it displays.
Banks’ 6-monthly disclosure statements are an important source of information if you want to delve more deeply into the financial condition of banks generally. Also, for an overseas-incorporated bank, its disclosure statements will remain the main source of information on the business of its New Zealand branch.
The kind of information banks must disclose
Each bank's disclosure statement contains a wide range of financial and other information, mainly in relation to the banking group.
A banking group is generally made up of the bank and any companies controlled by it. While as a depositor you place your money with the bank itself, it is the financial condition of the banking group as a whole that determines how safe your money is with the bank.
Disclosures by overseas banks
A bank that is incorporated overseas and operates a branch in New Zealand (rather than as a separate company) is required to disclose information both for the New Zealand branch and for the overseas bank of which it is part.
Because the New Zealand branch is part of the overseas bank, depositors and other creditors of the branch in New Zealand are creditors of the overseas bank as a whole. Consequently, in assessing the financial condition of such a bank, it is generally more relevant to look at the financial condition of the overseas bank.
However, it can also be useful to look at the financial information disclosed for the New Zealand branch, given that in some countries laws can mean that foreign creditors (such as depositors in New Zealand) might not be treated the same as creditors in the bank's home country in a winding up of the bank. In such a case, the financial condition of the New Zealand branch can be relevant.
No information on particular investment products
The disclosure statement does not contain information on the terms and conditions of a bank's deposits and other investment products. This kind of information is contained in other material made available by the bank.
Disclosure statements are audited
A bank's disclosure statement for the end of year is subject to a full audit. The disclosure statement at the half-year is subject to a lower level audit, called a 'review'.
The audit and review must be conducted by a qualified auditor (that is, a chartered accountant).
Key information in disclosure statements
Some of the more important information included in a bank's disclosure statement is outlined below.
Each bank is required to have one or more credit ratings applicable to its long-term liabilities payable in New Zealand (that is, any deposits or other liabilities of the bank with a term of 12 months or more). For each of these ratings the bank must disclose:
- the rating (and any qualifications to it; for example, whether its rating is currently being reviewed)
- the name of the 'rating agency' (that is, the company that gave the rating).
The full-year disclosure statement must also show any changes made to the rating in the previous two years, and descriptions of all the steps in the applicable rating scale.
Definition of a credit rating
A credit rating is an assessment made by an approved independent rating agency of a bank's future ability to repay its debt (such as the money it owes to depositors) and of its general financial soundness.
A credit rating provides a useful way of comparing one bank with another, although other factors are also important to take into account when comparing different banks (for example, other information contained in the disclosure statement).
Profitability and total assets
A major part of a bank’s disclosure statement is taken up with the bank’s financial statements, prepared in accordance with generally accepted accounting practice. Key components at the front of the financial statements are the income statement and the balance sheet. Among other things, these include figures for post-tax profit for the period and total assets at the end of the period, along with comparative figures allowing you to see how these have changed compared to previous relevant periods.
Each bank is required to disclose the capital position of its banking group in the form of the group's capital ratios. Capital acts as a buffer against losses. In broad terms, capital is a measure of how much a bank’s assets exceed the amount of money it owes depositors and other ordinary creditors. Capital is expressed as a percentage of the banking group's total 'risk-weighted exposures'.
Risk-weighted exposures are a measure of the banking group’s exposure to credit risk, market risk and operational risk. Capital as a percentage of risk weighted exposures is known as the capital ratio. Use of the capital ratio enables a banking group's capital position to be compared with those of other banking groups.
Disclosure statements also contain further detailed information on how these ratios are calculated.
More information on the different forms of capital and capital ratio requirements for banks (including the concepts of 'Common Equity Tier 1' and 'Tier 1' capital referred to below) is available in the Bulletin article ‘The Reserve Bank’s application of the Basel III capital requirements for banks’ and in information relating to the capital adequacy framework in New Zealand.
Every bank is required to disclose the amount of its impaired assets and the level of provisioning against impaired assets (some banks may refer to these provisions as 'allowances for credit impairment loss').
Impaired assets explained
Impaired assets are typically loans that are at risk of not being fully repaid to the bank or where interest on the loans may not be fully paid by the borrower.
Provision for impaired assets
A bank creates a provision (sometimes called an 'allowance for credit impairment loss') in its financial statements when it believes it is likely to lose money on an asset. The creation of a provision reduces the bank's profit and sets aside some of the bank's resources to absorb the expected loss on its impaired assets.
Why the disclosure of impaired assets is important
Information on impaired assets provides a useful indication of the extent to which a bank's impaired assets have reduced the bank's capital and profitability or could reduce these in the future.
Banks are required to disclose information on their concentration of lending; that is, their large-value loans to customers.
This disclosure shows the number of customers to which the banking group has lent money where the value of the loan equals or exceeds 10% of the banking group's Common Equity Tier 1 (CET1) capital. This information must be disclosed in 5% bands relative to CET1 capital.
This information must be disclosed on the basis of both the position at the balance date and the peak amount of loans to customers over the most recent financial quarter. Information based on the peak lending to customers is important, given that a bank's lending to a customer can vary over time.
As well as large-value loans to customers, a bank must also disclose the number of large credit exposure concentrations it has to other banks.
Why exposure concentration is important
This information provides a measure of how well diversified a banking group's lending is. It indicates whether a banking group lends a large proportion of its money to a small number of customers or spreads its lending risk over a large number of customers.
Every bank is required to disclose in its full-year disclosure statement the amount it has lent to 'connected persons'. The bank must show both the amount at the end-year balance date and the peak lending to connected persons over the year.
Definition of a connected person
A connected person is any person or entity who can control or significantly influence a bank either directly or indirectly. Examples of connected persons include a controlling shareholder (for example, parent company) of a bank, or another entity in which the bank’s owner has a substantial interest (for example, a sister company).
Limits on connected lending
A connected person has the power to direct, coerce or encourage a bank to lend to it on non-commercial terms or in unfavourable circumstances. This would be to the potential detriment of a bank's depositors. For this reason, we impose limits on the amount that a banking group (of a bank incorporated in New Zealand) may lend to a connected person. These limits vary according to the bank’s credit rating and are imposed on the bank through its condition of registration. For example, where a bank has a very strong credit rating, the limit on exposures to connected persons is 75% of the banking group’s Tier 1 capital. For a bank with a very low credit rating, it is subject to a limit on connected exposures of 15% of the banking group’s Tier 1 capital.
Although the figures are only disclosed once a year, if a bank breached these limits at any point it would have to disclose that fact in its next disclosure statement. Banks operating in New Zealand as branches of overseas banks are not subject to a connected exposure limit because they are not required to hold capital in New Zealand. However, the overseas bank as a whole is likely to be subject to appropriate connected lending requirements by the supervisory authority in the bank's home country.
Other information in disclosure statements
As well as the information highlighted above, a bank's disclosure statement provides a wide range of detailed information, including:
- the name and a description of the main business activities of each company in the banking group
- information on guarantees of the bank's obligations
- detailed information on the risk exposures and capital position of the banking group
- comprehensive information on the balance sheet, profit and loss statement, impaired assets and other financial matters
- a historical summary of the banking group's financial performance and condition
- information on the banking group's involvement in insurance business, where applicable
- information on the banking group's concentration of lending to, and borrowing from, different geographical regions and industries, where applicable
- information on the directors of the bank and the directors’ statements
- information on the conditions of registration of the bank for the applicable period.
Some of this information is only included as a matter of course in the full-year disclosure statement and is updated in disclosure statements for other periods if there has been a significant change in the meantime.
Directors' signed statements
A bank's disclosure statement is required to contain certain statements signed by each director of the bank and, in the case of a bank incorporated overseas, the bank’s New Zealand chief executive officer.
These statements strengthen the incentives for bank directors (and, where applicable, the New Zealand chief executive officer) to oversee and take ultimate responsibility for the sound management of their bank.
These signed statements must state:
- whether the bank has systems in place to monitor and control adequately the banking group's material risks and whether those systems are being properly applied
- whether the bank has complied with its conditions of registration over the period covered by the disclosure statement
- whether the banking group's loans to connected persons are contrary to the interests of the banking group
- that the information contained in the disclosure statement is not false or misleading.
A bank's disclosure statement must not be false or misleading
By law, a bank's disclosure statement must not be false or misleading. If the information in a disclosure statement is found to be false or misleading, the bank's directors (or chief executive if it is an overseas incorporated bank) can face criminal or civil penalties under the Reserve Bank of New Zealand Act.
Where we believe that a disclosure statement is false or misleading, we can require a bank to publish corrections to the disclosure statement or publish a new disclosure statement.
Frequency of disclosure statements
Banks must publish their disclosure statements every six months. For example, a bank with a balance date of 31 March must produce a disclosure statement for the six months to 30 September and the full year to 31 March.
Disclosure statements for the end of year must be published within three months of the year-end. Disclosure statements for the half-year must generally be published within two months of that date, but the bank may defer publication by up to a month in certain circumstances.
How to access disclosure statements
A bank must make its disclosure statement readily accessible on its website. For locally incorporated banks, this must be via a link labelled 'disclosure statements' from the home page of its website. For an overseas bank, the link must be from the main page of any New Zealand section of its website.
If you visit a bank or any of its branches or agencies in person and ask for a copy of its most recent disclosure statement, the bank must offer to give you printed copies of its most recent full-year disclosure statement and the half-year disclosure statement (if it has been published since the date of the full-year disclosure statement). The bank must dispatch the documents by the end of the second working day following the day the request was made.
The disclosure requirements give banks greater flexibility in how to respond to requests received in other ways, or for requests asking for disclosure statements other than the most recent ones. So, for instance, if someone makes a request by email, the bank might respond by emailing copies of the required disclosure statements. However, the 2-day deadline still applies.
In all cases, the bank must provide its disclosure statements free of charge.
Seeking advice on investment
While a bank's disclosure statement provides a useful indication of a bank's financial condition, it does not necessarily present the full picture and needs to be interpreted with care.
Deciding where to invest your money is an important decision that involves carefully assessing the risks and returns, and terms and conditions, of various investment options. The information needed to make this assessment is not always easy to understand.
Therefore, investors might find it helpful to obtain professional advice when deciding where to deposit or invest their money.
We do not give investment advice
Our role as prudential regulator and supervisor of the banking system does not involve giving advice to depositors or other investors on the financial condition of any particular bank. If you have a question about a bank's disclosure statement, you should direct your question to that bank or to a professional adviser.
If you need more information about a particular bank's disclosure statement, you should make your enquiries to the bank directly.
For New Zealand branches of overseas incorporated banks, we publish the G2 comparative data table that is drawn from branch disclosure statements in the statistics section of our website.
For New Zealand-incorporated banks, the Dashboard provides quarterly prudential information from May 2018 onwards.
Historical data (previously the G1 table) are archived on the statistics section of our website.