Capital requirements for banks in New Zealand

Browser issue

It looks like the browser you're using doesn’t work well with our website. For a better experience, please update to the latest version of Chrome , Edge , Firefox or Safari .

Standards and requirements for banks

Capital requirements specify the minimum percentage of a deposit takers' funding that must come from its owners. These requirements are set out in the capital adequacy framework.

Published:

Last updated:

Capital adequacy framework

The capital adequacy framework incorporates the following main parts:

capital ratios

determination of qualifying capital

determination of exposures and risk weighting of those exposures

internal capital adequacy assessment process

disclosure.

A full description of all the requirements is set out in the Banking Prudential Requirements (BPR) documents . A short summary is provided below.

Implementation of the 2025 Review of key capital settings decisions

The 2025 Review of key capital settings decisions reduce the previously scheduled increases in capital requirements out to 2028 under the 2019 Capital Review decisions. The 2025 decisions will ease overall capital intensity relative to the final settings under the 2019 decisions, while continuing to support financial stability. This includes lowering the minimum requirements for Tier 1 and total capital ratios, removing Additional Tier 1 instruments and refining risk weights.

In February 2026 we published a summary of how the new requirements will be phased in.

Read the 2025 decisions and implementation schedule

The 2025 decisions will be incorporated into the Capital Standard in the Deposit Takers Act 2023 (DTA), which is scheduled to take effect in 2028. We intend to introduce some changes, in particular, changes to risk weights, in 2026 before the DTA takes effect. We intend to consult on a transition path for introducing Loss-Absorbing Capacity requirements in 2026.

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:

Banking group’s prudential restrictions capital buffer ratio

Percentage limit on distributions of the bank's earnings

0%–0.5%

0%

0.5–3.5%

30%

3.5–5%

60%

5–5.5%

100%

Since 1 July 2025, the following restrictions have applied to all other banks:

Banking group’s prudential restrictions capital buffer ratio

Percentage limit on distributions of the bank's earnings

0%–0.5%

0%

0.5–2%

30%

2–3%

60%

3–3.5%

100%

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.

Basel 2 standardised approach

Locally incorporated registered banks in New Zealand using the standardised approach under Pillar 1 are subject to conditions of registration that require capital adequacy to be calculated using the frameworks set out in the following documents:

BPR131: Standardised-Credit-Risk-RWAs

BPR132: Credit Risk Mitigation

BPR140: Market Risk

BPR150: Standardised Operational Risk

BPR160: Insurance Securitisation and Loan Transfers

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

Basel 2 internal models-based approach

Locally incorporated registered banks in New Zealand using the internal ratings-based (IRB) approach under Pillar 1 are subject to conditions of registration that require capital adequacy to be calculated using the frameworks set out in:

BPR132: Credit Risk Mitigation

BPR133: IRB Credit Risk RWAs

BPR134: IRB Minimum System Requirements

BPR140: Market Risk

BPR151: AMA Operational Risk

BPR160: Insurance Securitisation and Loan Transfers

These documents are all 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.

Disclosure

The disclosure regime for registered banks in New Zealand page provides details of our approach to disclosure.

Read more about the disclosure regime for banks

Domestic, systemically important banks

We have decided that ANZ Bank New Zealand, ASB Bank, Bank of New Zealand and Westpac New Zealand will be classified as domestic, systemically important banks (D-SIBs).

Read more about the requirements for domestic, systematically-important banks

Transitional capital arrangements

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

Document

Document reference

Date of issue

BS2A November 2015 superseded
(PDF 1.8 MB)

BS2A

November 2015

BS2B November 2015 superseded
(PDF 3.4 MB)

BS2B

November 2015

More information

We have developed some plain language 'explainers' to help you understand some of the key concepts of the capital adequacy framework such as 'capital':

Capital Buffer Response Framework explainer
(887 KB)

Capital Review Go-to-Guide 2019
(PDF 662 KB)

2025 Review of key capital decisions