'Heartland' bank could wait years for licence

A licence for any new bank can take several years to get, the Reserve Bank has warned.

A spokesman for the bank, which is in charge of licensing and monitoring the banking sector, said it would not comment on the move by Pyne Gould Corporation, Southern Cross Building Society and Canterbury Building Society to merge their banking-related assets and apply to become a bank.

But he said the process was not simple.

"It can take quite a long time. Several years is not unknown."

The parties behind the new bank want the merger completed by early next year so they can gain a banking licence by mid-2011.

The Reserve Bank will approve an application only if the applicant can prove the licence will "promote the maintenance of a sound and efficient financial system" and any failure of the registered bank would "avoid significant damage to the financial system."

Those who wish to apply must also have a good standing, such as an investment grade credit rating, the proven ability to manage financial risk and the ability to access capital.

Applicants must also meet minimum requirements around working capital, capital ratios, related-party lending and liquidity.

"This assessment will take some time, and a proven track record will probably be needed before an application would be assessed," the spokesman said.

PGC chief executive Jeff Greenslade said the mid-2011 target "may not be achievable ... regulators might not allow us to do that".

Ross Smith, chief executive of SBS Bank, which was the last New Zealand bank to gain a banking licence, in October 2008, said he expected it to be at least two years before the proposed bank got off the ground.

Any merger would take six months and then it took time to get a credit rating upgrade, he said. Once a company was on a positive credit watch it could take a further six months to lift the rating. "Only then can they apply for registration."

Smith said it had taken SBS Bank, formerly Southland Building Society, six months once it applied to get the licence.

"But we didn't have to go through a merger and a credit rating upgrade."

Smith said it had decided to register as a bank to get out of the non-bank sector which it felt was "tarnished" after the finance company collapses.

The increase in regulation was also a driver. "We thought if we have to comply with more regulations we may as well be in the banking sector."

Smith said it felt the move had added credibility to the business and separated it from the smaller players.

He believed there was space in New Zealand for another locally owned bank.

"They are in business at the moment so there is demand for the services provided."

The proposed new bank would have its headquarters in Christchurch but Smith said he wasn't worried about the added competition.

THE RULES
* Applicants must prove the licence will "promote the maintenance of a sound and efficient financial system".
* Applicants must have good standing, an investment grade credit rating, the proven ability to manage financial risk and the ability to access capital.
* They must meet minimum requirements around working capital, capital ratios, related-party lending and liquidity.