RBNZ releases tougher rules for non-bank sector

Boards of non-bank lenders will have to take responsibility for the solvency, capital adequacy and liquidity of their companies, along with approving prudential requirements and monitoring any legal compliances, according to the updated risk management programme guidelines.

Non-bank lenders have until September 1 to implement risk management programmes which need "to show how they will identify and manage credit risk, liquidity risk, market risk and operational risks, appropriate to each institution's particular circumstances," the central bank said. The guidelines were finalised after a month of submissions, but won't impose any requirements on the sector, as those will be covered in the upcoming papers.

Other amendments to the draft document are around identifying specific risks to the business. Under credit risks, NBDTs will be required to include procedures to establish and modify lending procedures, as well as identifying "potential defaulting loans or adverse trends" in their loan books. While an extra liquidity risk non-bank lenders will need to be wary of is the high concentration of loans in a specific area of economic activity.

Lenders will also have to manage the risk they face from funding sources if they receive a credit rating downgrade.