Aussie banks have a 80 % share in NZ banking sector mainly owned by ANZ National bank, Bank of New Zealand, Westpac & Auckland Savings Bank.
IMF (International Monetary Fund) has warned that financial problems in NZ will affect Australian banks and may potentially reduce international funding to Australian Banks, according to news published in Stuff.
As per IMF, exposure of Aussie banks to NZ, lower standards in lending, dependence on foreign funding & excessive exposure to highly geared households are the key risks to Australian banks.
IMF has urged the Australian govt. to draft a clear policy to deal with banking failures & has also recommended that ASIC (Australian Securities and Investments Commission) & APRA (Australian Prudential Regulation Authority) should be allowed to work with full independence.
Peter Costello, Australian treasurer, revealed that though the govt. had declined deposit insurance, a discussion with banks is in progress to allow financial access to deposit holders while the problems of troubled organization were being sorted out.
However, IMF's suggestions regarding ASIC & APRA have been rejected. Mr. Costello said that that would see Australia in line with the international practice & would give both ASIC & APRA higher operation independence.
Aussie banks presently dominate NZ banking market. In both NZ & Australia, the banks posses a high exposure level to highly geared household sector. Moreover, reliance on international funding is also seen due to decline in traditional deposits. International funding accounts for 27 % of total funding while domestic funding accounts for 50 %.
Financial troubles in a NZ subsidiary could pose material effects on Aussie banks, mainly in funding. Even though these parent's liquidity threats were prevented, reputation costs to Aussie banks on failure of NZ branch or subsidiary will be significant, likely to impact parent bank's international funding.
"NZ is more susceptible to economic & financial changes than Australia. However, any negative development in NZ can adversely affect Australian banks," said an analyst at RNCOS.
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