Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 

RBNZ says banking system risks have eased, loosens LVRs

By Jenny Ruth

Nov. 28 (BusinessDesk) - As widely expected, the Reserve Bank has further eased its loan-to-valuation restrictions on banks’ mortgage lending and the central bank said the risks to the country's financial system have eased in the last six months.

In its latest financial stability report, the central bank said that “both mortgage credit growth and house price inflation have eased to more sustainable rates, reducing the riskiness of banks’ new housing lending.”

Nevertheless, it said vulnerabilities persist and households in particular remain exposed to financial shocks due to their large mortgage debt burden.

The Reserve Bank said debt in the agricultural sector, particularly for dairy farms, remains high “implying ongoing financial vulnerability.”

Agricultural balance sheets need to be strengthened, it said.

In the medium term, the agricultural industry needs to respond to a variety of climate change-related challenges and that will likely require investment.

Domestic risks have eased but global financial vulnerability has increased, the central bank said.

“Significant build-ups in debt and asset prices, and ongoing geopolitical tensions, overhang financial markets,” it said.

“This vulnerability is highlighted by the current elevated price volatility in equity and debt markets.”

New Zealand’s exposure to global risks has reduced because New Zealand banks have become less reliant on short-term and foreign funding, the Reserve Bank said.

“The domestic banking system remains sound at present. We are using this period of relative calm to reassess whether the banking system has sufficient capital to weather future extreme shocks,” it said.

“Our preliminary view is that higher capital requirements are necessary so that the banking system can be sufficiently resilient whilst remaining efficient.”

The central bank said it will release a final consultation paper on bank capital requirements in December.

It noted bank profitability reflects their low operating costs and strong asset performance but says those low costs have been achieved partly through underinvestment in core IT infrastructure and risk management systems.

The Reserve Bank and the Financial Markets Authority will be reviewing bank responses to their recent joint inquiry on bank conduct and culture in March next year and following up as required.

The central bank noted the full liquidation of CBL Insurance on Nov. 12 but said aside from that company, the insurance sector as a whole is meeting its minimum capital requirements.

“However, capital strength has declined and a number of insurers are operating with small buffers. The insurance industry must ensure it has sufficient capital to maintain solvency in all business conditions,” the Reserve Bank said.

It said its review of the insurance industry’s conduct and culture, also in conjunction with the FMA, will be released in January 2019.

The LVRs to be eased from Jan. 1 will allow banks lend up to 20 percent of their new mortgage lending to borrowers putting down less than a fifth as a deposit, up from 15 percent currently.

As well, the deposits investors must have has been eased to 30 percent of a property’s value, down from 35 percent previously.

Although banks are allowed to lend up to 5 percent of total new lending to investors with smaller deposits, that level is so low as to effectively bar such lending.

(BusinessDesk)

ends

© Scoop Media

 
 
 
Business Headlines | Sci-Tech Headlines

 

Government: New Year Border Exception For Seasonal Workers In The Horticulture And Wine Industries

2000 additional RSE workers to enter New Zealand early next year employers must pay these workers at least $22.10 an hour employers will cover costs of managed isolation for the RSE workers RSE workers will be paid the equivalent of 30 hours work a week ... More>>

ALSO:

Grey Power: Is Disappointed To Learn Of More Bank Closures

Many older people are being left without essential services because of cost cutting and the march of modern technology. It is now expected that most banking transactions can occur via the internet or telephone. Jan Pentecost, President of the Grey Power ... More>>

ALSO:

Economy: Supply Chain On Brink Of Overload Says National Road Carriers

The New Zealand supply chain is on the brink of overload and it looks like the upcoming peak imports season may push it over the edge says National Road Carriers Association (NRC) CEO David Aitken. “Worldwide supply chains are in disarray,” says Mr Aitken. ... More>>

Stats NZ: Annual Goods Trade Surplus At 28-Year High

New Zealand’s annual goods trade surplus reached a 28-year high of $2.2 billion as imports tumbled in the year ended October 2020, Stats NZ said today. “This is the largest annual surplus since the July 1992 year, driven mainly by much lower ... More>>

ComCom: How Real Is That Bargain?

The Commerce Commission urges retailers and consumers to think hard about the bargains being offered as ‘Black Friday’ and Christmas draw near. Black Friday has now overtaken Boxing Day in terms of retail spending, according to data from electronic ... More>>

Stats NZ: Births And Deaths: Year Ended September 2020

Births and deaths releases provide statistics on the number of births and deaths registered in New Zealand, and selected fertility and mortality rates. Key facts For the year ended September 2020: 57,753 live births and 32,670 deaths ... More>>

ALSO:


Forest & Bird: Kākāpō Wins Bird Of The Year 2020

The nation has voted and Aotearoa New Zealand has a new Bird of the Year. New Zealand’s moss-colored flightless parrot has climbed to the top-spot for the second time in Forest & Bird’s annual Te Manu Rongonui o Te Tau/Bird of the Year competition. ... More>>