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Monday, March 1

Credit ratings mandatory for deposit takers



The Reserve Bank announced today that credit ratings are now mandatory for non-bank deposit takers (NBDTs).

Reserve Bank Governor Alan Bollard said credit ratings from approved rating agencies play an important role in the new regulatory regime. "Credit ratings are useful as they assist investors to compare the relative riskiness of deposit taking institutions when they decide where to invest their funds."

Mandatory credit ratings are a key component of the new prudential regulatory regime for deposit taking finance companies, building societies and credit unions. The regime also includes capital adequacy requirements, restrictions on lending to related parties, governance and risk management requirements. The Reserve Bank is progressively introducing the requirements of the new regime to help improve the future resilience of New Zealand's non-bank sector.

The Bank is encouraging depositors to use credit ratings in assessing the risk reward trade-off of a deposit taker. More generally, the Bank encourages investors to seek more information on making wise investment decisions. A useful resource is the Retirement Commission's Investing booklet which can be accessed from www.sorted.org.nz.

"It's up to the investor to make the final decision as to where to invest their money and credit ratings are a very useful tool to help them," Dr Bollard concluded.

Not all deposit takers will have credit ratings as some may be exempted from the requirement by the Reserve Bank. For example, in recognition of the cost of obtaining and maintaining a rating, small NBDTs, i.e. those with less than $20m of consolidated liabilities, are able to operate with an exemption from the credit rating requirement provided the Bank has been notified in advance.

The current credit ratings of NBDTs and the companies that have been granted an exemption from holding a credit rating are now available on the Bank's website.

A simple factsheet on credit ratings has been developed to help investors understand credit ratings and how to use them.

The factsheet and information on the NBDT regulatory regime can be accessed on the Bank's website (www.rbnz.govt.nz).