The Reserve Bank’s new capital requirements for farm lending are now in place, meaning the four largest banks in New Zealand need to hold more capital against a loan.
Reserve Bank deputy Governor, Grant Spencer, says the new risk weights are more conservative and reflect a more accurate assessment of risk.
He says the new rules mean banks will be better prepared for any extreme shock to the rural sector.
While the new average risk weight across these banks will be about 80 to 90 percent.
Before the Basel 2 capital regime was introduced in 2008 that figure was 100%.
Mr Spencer says the changes are expected to have only a minor impact on rural loan margins, as banks have already adjusted pricing considerably over recent years.
