Reserve Bank lays down tight rules for buyers

By PAULA OLIVER

Banks lining up to buy the National Bank will not find it easy to gain the consent of the Reserve Bank to go ahead with the deal.

Under new laws passed by Parliament little more than two weeks ago, the central bank can impose conditions on the purchaser of 10 per cent or more of a registered bank.

The buyer must gain the written consent of the Reserve Bank to go ahead with the deal.

Since the laws came into effect, the banking sector's eyes have been fixed on how they could be applied in the case of Lloyds TSB's sale of the National Bank.

Yesterday Reserve Bank Deputy Governor Adrian Orr shed light on the issue.

In a letter to the chief executive of each of the country's registered banks, Orr outlined the central bank's biggest areas of concern around an acquisition and provided guidelines for consent applications.

Any prospective buyer must provide details of:

Any proposals to merge or restructure the business of the bank.

Any proposed transfers of the business of the bank to the balance sheet of an overseas-incorporated bank.

Any planned changes regarding forecasts for the next three years of operation, covering balance sheet and profit and loss.

Any planned changes with respect to the bank's target markets.

A specific statement detailing the extent of future capital support the buyer is prepared to give the bank.

A buyer must also provide a curriculum vitae for any person it proposes to put into a senior executive, chief executive, or director position at the bank.

Orr's letter made it clear that the Reserve Bank would take a close look at the ability of a New Zealand bank owned by an overseas player to stand alone if its parent got into trouble.

It was also pondering a longer-term idea of raising the minimum capital requirements for banks in New Zealand.

The letter and guidelines were yesterday seen by many commentators as evidence of a new, more hands-on era for the banking supervisor.

Massey University senior banking lecturer David Tripe told the Business Herald that the application for consent was simple in some areas but would require significant effort in others.

"It's not an easy form to fill in, is it?" he said of the application.

"It's really going to be a matter of how it ends up being used in practice. And that's hard to predict."

Tripe said he was slightly surprised the central bank was being so prescriptive.

"It almost reads like they now realise in retrospect that they were a little bit slack with some of what they allowed previously," he said.

"The legislation didn't have some of the checks and balances that it ought to have had. And now they're setting out to implement those."

KPMG banking group chairman Andrew Dinsdale said it appeared on the surface to be a change from the previously "totally hands-off" approach at the Reserve Bank.

"They're showing far greater interest in these matters," Dinsdale said.

Tripe suggested that some applicants might simply choose to say that they did not intend to go ahead with the more controversial issues detailed in the application process.

Further down the track they might say the situation had changed.

It would be wise, he said, for prospective buyers of the National Bank to secure Commerce Commission approval before beginning the Reserve Bank process.

Bank officers union Finsec applauded the outward appearance of a firmer supervisor.

"We've been arguing for a long time that we need an inquiry into banking in this country and the structure of it," Finsec general secretary Andrew Cassidy said.

"We've been so free market in our banking system for the past 15 years that many issues haven't been on the radar screen."

Banks approached by the Business Herald yesterday did not want to comment on the Reserve Bank's move.