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Articles by Salesh Chand.

Impact of bank capital requirements on funding

AUTHOR: Salesh Chand
Partner and Director of Business Services

POSTED: 12 December 2019

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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

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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.

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This letter is to express my appreciation for the assistance and encouragement of both Anthony Lipscombe and particularly John Heaslip over the last financial year. The period since activating my trading trust has been one of considerable stress, as well as personal development, as I embarked on this as a relative business neophyte with virtually no awareness of the contemporary requirements of running a business, particularly the financial records aspect. During much of this period I have therefore felt considerable out of my depth. However I have been lucky enough to have had the benefit of the advice and support of John Heaslip in rationalizing what was a fairly chaotic set of records of the first year property trading. I am able to say that John in particular, has been unstinting in his attention to my needs and has done so in a manner which has never alluded to my extremely rudimentary grasp of managing a business, or even of being unable to set out a spread sheet properly. The result of the above guidance is that now, although my trading trust would still not be able to operate without the advice of GRA, I do least feel a sense of satisfaction that I have got to my present point without major disaster and that my property trust does now have some kind of firmer basis for any future activities - Name withheld by request

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