GRA Blogs

Articles by Salesh Chand.

Impact of bank capital requirements on funding

AUTHOR: Salesh Chand
Partner and Director of Business Services

POSTED: 12 December 2019

As many investors will already know, banks have been steadily tightening their lending criteria, making it more challenging to borrow. And soon, when the new capital requirement rules for banks come into effect next year, this is only going to get harder.

Capital requirements for the major banks will be increased from 10% to 18% over the next seven years, meaning they will collectively need to raise and hold an extra $20 billion. That’s $20 billion less that they can lend to businesses and investors. The increased capital requirements are expected to result in a rise in interest rates of between 20–40 basis points (0.2%–0.4%).

So what does this mean for business owners and property investors?
To minimise the effect this will have on your ability to borrow money, you need to get your financial affairs in order. And you need to do this now, not later. We suggest the following strategy:

Organise maximum overdraft facilities ASAP. Chances are that the banks will have a reduced appetite for offering overdraft facilities moving forward due to the increased cost of providing them.
Avoid purchasing assets on finance or hire purchase prior to getting your overdraft sorted, as this will impact your serviceability and may result in a lower overdraft facility.
Once you have arranged your maximum overdraft, get all your credit cards in place. Don’t do this the other way around because it will have an effect on the amount of overdraft facility you can get.

In summary, the new rules will make it harder for investors and businesses to borrow, but there are things you can do now to reduce the impact this will have on you. However, you’ll need to act fairly quickly. Contact your mortgage broker for more advice. (We recommend Kris Pedersen Mortgages - you can contact them here.)

Request a Meeting

Salesh Chand
Partner and Director of Business Services

09 522-7955

[email protected]

© Gilligan Rowe & Associates LP

Did you like this article? Subscribe to our newsletter to receive tips, updates and useful information to help you protect your assets and grow your net worth. We're expert accountants providing expert advice to clients in NZ and around the world.

Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.

Comments

Testimonials

I would like to express my sincere thanks to yourself and the team at GRA / Cornwall Trustees for the services you recently provided to my Trust. You were both professional and expedient in organising for Skeates Law and yourselves to execute the conveyancing of my property into the Trust to allow the title to reflect the correct Trustee names at LINZ and on the local council rating system in time for my advertising the sale of this property. I am sure that you have a team supporting you that allows you to make quick decisions and for these decisions to be executed with accuracy and pace that provided such an excellent service to my Trust. This also reminds me of an old L.V Martin television advert where their motto was "it’s the putting right that counts" and you certainly did do this in my case. In return you have a very satisfied client who wishes to convey their appreciation of their experience. Kind regards - Pravin

Seminars and workshops for property investors, business owners and anyone seeking to create and protect their wealth.

View all our upcoming events

Learn More

Investing in residential property?

Put this at the top of your reading list.

If you're investing in residential property, seeking to maximise your ability to succeed and minimise risk, then this is a 'must read'.

Matthew Gilligan provides a fresh look at residential property investment from an experienced investor’s viewpoint. Written in easy to understand language and including many case studies, Matthew explains the ins and outs of successful property investment.