Reserve Bank to look at loan restrictions

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. —