Otago Daily Times

Re­serve Bank to look at loan re­stric­tions

- TAMSYN PARKER The New Zealand Herald Business · Finance · Banking · Reserve Bank of India

WELLINGTON: The Re­serve Bank is to con­sult on bring­ing back home lend­ing re­stric­tions by March 1.

The cen­tral bank has been fac­ing pres­sure from com­men­ta­tors call­ing for lend­ing re­stric­tions to be brought back amid an un­ex­pected boom in the hous­ing mar­ket.

The loan­to­value ra­tio re­stric­tions on bank lend­ing were put on hold in May for a year to help en­cour­age the banks to keep lend­ing and en­sure they did not pre­vent mort­gage de­fer­rals from go­ing ahead.

In a state­ment yes­ter­day, the RBNZ said in De­cem­ber it would con­sult on re­in­stat­ing loan to value ra­tio (LVR) re­stric­tions on high­risk lend­ing with ef­fect from March 1, 2021.

Re­serve Bank deputy gov­er­nor and gen­eral man­ager fi­nan­cial sta­bil­ity Ge­off Bas­cand said cir­cum­stances in the lend­ing mar­ket had since im­proved.

‘‘We are now ob­serv­ing rapid growth in higher­risk in­vestor lend­ing. We will con­sult about re­in­stat­ing the re­stric­tions we had in place pre­Covid, which lim­ited the amount of high­risk lend­ing that banks could make.’’

The Re­serve Bank will also ex­tend the time­frame on when new bank cap­i­tal re­quire­ments will start.

They had been due to come into force in July but were pushed out a year. Now, the cen­tral bank has de­cided to push it out to July 2022.

Mr Bas­cand said it was fur­ther de­lay­ing the start of in­creases in bank cap­i­tal to al­low banks head­room to re­spond to the ef­fects of the Covid­19 pan­demic and to sup­port the eco­nomic re­cov­ery.

‘‘Covid­19 has em­pha­sised the im­por­tance of buf­fers in the fi­nan­cial sys­tem. The more cap­i­tal a bank holds, the bet­ter it can weather eco­nomic storms and meet cus­tomer needs dur­ing tough times,’’’ he said.

‘‘De­lay­ing the im­ple­men­ta­tion of parts of the cap­i­tal re­view de­ci­sions by a fur­ther 12 months strikes the right bal­ance be­tween pro­vid­ing more head­room for banks to sup­port lend­ing now by draw­ing on their cap­i­tal buf­fers, while also en­sur­ing that cap­i­tal lev­els lift in the longer term to sup­port fi­nan­cial sta­bil­ity.’’

Mr Bas­cand said the RBNZ re­mained in­tent on in­creas­ing cap­i­tal re­quire­ments in the medium­term.

The RBNZ would re­con­firm the tim­ing of the changes near the end of 2021 and would con­sider mak­ing fur­ther amend­ments if war­ranted.

It will also keep re­stric­tions on bank div­i­dends in place un­til the end of March or later if re­quired.

The RBNZ put a halt on div­i­dends and re­deem­ing of non­com­mon eq­uity tier 1 cap­i­tal in­stru­ments in April.

It has also told in­sur­ers that it ex­pects in­sur­ers will only make div­i­dend pay­ments if it is pru­dent for that in­surer to do so. —

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