Australia and New Zealand Banking Group (ANZ) has noted that its New Zealand arm will be significantly impacted by the new law that restricts offshore exposure of Australian lenders.

Recently, the Australian Prudential Regulation Authority (APRA) confirmed to implement previously announced plans to ceil capital allocated to foreign subsidiaries. It limits the exposure from 50% of Level 1 Total capital to 25% of Level 1 Tier 1 capital.

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Accordingly, the regulations will significantly impair ANZ ability to inject capital in ANZ New Zealand.

Furthermore, ANZ New Zealand will be required to hold up additional revenue to meet potential future requirements.

However, ANZ said that the extent of impact will depend on number of factors including the Reserve Bank of New Zealand’s decision on capital requirements.

The regulations are set to become effective from January 2021.

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ANZ, one of the Big Four banking groups in Australia, is the largest lender in New Zealand. Overall, its business in the neighbouring country accounts for nearly a fifth of its profits, reported Reuters.

The other three lenders of the Big Four group- National Australia Bank (NAB), Commonwealth Bank of Australia (CBA) and Westpac also have significant businesses in New Zealand.

On the new requirement, NAB spokeswoman said that it does not require any further disclosures from the bank.

CBA said that the lowered limit provides ‘sufficient capacity’ to accommodate its foreign exposures.

Westpac declined to comment on Reuters’ queries.

Last month, ANZ was sued by Australian regulator for imposing certain illegal fees on customers.