Strong capital adequacy gives New Zealand banks heart as they enter lockdown

New Zealand has become the latest country to introduce strict measures to combat the spread of Covid-19. On March 23, prime minister Jacinda Ardern announced that by March 25, all of the country’s schools and non-essential businesses would be closed for four weeks. The entire population, outside those working for essential services, have been told to stay at home except to buy food and medicine, or to exercise.

On March 15, New Zealand’s central bank cut its interest rate from 1% to 0.25%, and more recently it announced that will be carrying out quantitative easing worth NZ$30bn ($17.3bn). In addition, the government will also be implementing a NZ$12.1bn fiscal stimulus programme.

Nonetheless, the country’s economy, like many across the world, will come under significant pressure in the coming weeks. New Zealand’s banks are well capitalised and are going into the shutdown in a relatively strong position. All four largest banks have a core Tier 1 capital adequacy ratio of more than 10%. In terms of profitability, the banks also have relatively healthy return on equity (RoE) ratios. All four largest banks have an RoE of more than 12%, ranging from 12.61% for ANZ Bank New Zealand to 16.35% for ASB Bank.