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Reserve Bank decision disappointing for small business and rural sector

Contributor:
Fuseworks Media
Fuseworks Media

Today’s announcement of the Reserve Bank of New Zealand’s decision on capital lending will have a significant impact on small business and rural-based sectors, according to Canterbury Employers’ Chamber of Commerce Leeann Watson.

The proposal by the Reserve Bank was to increase the amount of capital that must be held by banks, to strengthen their position and reduce the risk of failure - with banks holding 20 to 60 percent more capital. The proposal has been accepted in a decision announced today by Governor of the Reserve Bank of New Zealand Adrian Orr.

Ms Watson says the decision represents a significant potential threat to the economic stability of small businesses and the rural sector, as well as the wider economy.

"This decision means that Aotearoa New Zealand’s main four banks could have to obtain around $15-$20 billion from offshore investors, which is a significant amount when you compare the total capitalisation of the New Zealand sharemarket at around $150 billion.

"For local businesses on the ground, there is a very real threat that the potential multi-billion-dollar costs will be passed on to customers, not shareholders - and that this would adversely impact businesses that just aren’t in a position to absorb that kind of hit.

"The additional costs to borrowers could make lending more expensive and more unobtainable for those businesses already struggling to access capital. The cost of credit for those businesses able to access lending would also likely increase.

Ms Watson says this is a return to earth for small businesses in the same week as the release of the Small Business Council’s The New Zealand Small Business Strategy, which included access to finance as one of its key target areas.

"These businesses are already working through numerous Government policy changes as well as the day-to-day challenges of operating a business - not to mention they key global disruptors such as climate change and the future of work - so they need the confidence that their banks will continue to support them; this decision could significantly impact that confidence.

"We are concerned about the pace of change for those businesses that will be impacted and will continue to work with the local business community to help ease that transition period."

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