RBNZ is putting in place more stringent loan-to-value ratio (LVR) restrictions to reduce financial stability risks posed by high-risk mortgage lending. RBNZ will reinstate, as of March 01, 2021, LVR restrictions at the same level they were set at prior to the onset of COVID-19 pandemic, with tighter restrictions taking effect on May 01, 2021. According to Geoff Bascand, the RBNZ Deputy Governor and General Manager of Financial Stability, this two-step process has been put in place in line with the operational capabilities of mortgage lenders. Meanwhile, RBNZ has also made available the frequently asked questions (FAQs) on LVR restrictions.
RBNZ announced that, from March 01, 2021, LVR restrictions for owner-occupiers will be reinstated to a maximum of 20% of the new lending at LVRs above 80%. In addition, from March 01, 2021, LVR restrictions for investors will be reinstated to a maximum of 5% of the new lending at LVR above 70%. Then, from May 01, 2021, LVR restrictions for owner-occupiers will remain at a maximum of 20% of new lending at LVRs above 80%; also, LVR restrictions for investors will be further raised to a maximum of 5% of new lending at LVRs above 60%. The LVR restrictions do not apply to new residential construction.
The RBNZ Deputy Governor said that LVR restrictions were removed in April 2020 to ensure that they did not interfere with the COVID-19 policy responses aimed at promoting cash flow and confidence. Since then, a rapid acceleration in the housing market has been witnessed. RBNZ is now concerned about the risk a sharp correction in the housing market poses for financial stability. There is evidence of a speculative dynamic emerging with many buyers becoming highly leveraged. Highly leveraged property owners, in particular investors, are more prone to rapid “fire sales” that potentially amplify any downturn. These financial stability risks exceed the situation at the time of the LVR consultation launched in December 2020, which has resulted in more restrictive policy settings. The consultation on the proposal to reinstate LVR restrictions was undertaken from December 08, 2020 to January 22, 2021. In due course, a full summary of submissions will be released, along with a Regulatory Impact Assessment.
Keywords: Asia Pacific, New Zealand, Banking, COVID-19, Regulatory Capital, Credit Risk, Basel, LVR, RRE, RBNZ
Previous ArticleHM Treasury Allows Extended Repayment Delay Under COVID Loan Scheme
BIS published a paper that provides an overview on the use of big data and machine learning in the central bank community.
APRA finalized the reporting standard ARS 115.0 on capital adequacy with respect to the standardized measurement approach to operational risk for authorized deposit-taking institutions in Australia.
ECB published a guide that outlines the principles and methods for calculating the penalties for regulatory breaches of prudential requirements by banks.
MAS and The Association of Banks in Singapore (ABS) jointly issued a paper that sets out good practices for the management of operational and other risks stemming from new work arrangements adopted by financial institutions amid the COVID-19 pandemic.
ACPR announced that a new data collection application, called DLPP (Datalake for Prudential), for collecting banking and insurance prudential data will go into production on April 12, 2021.
BCB announced that the Financial Stability Committee decided to maintain the countercyclical capital buffer (CCyB) for Brazil at 0%, at least until the end of 2021.
EIOPA has launched a European-wide comparative study on non-life underwriting risk in internal models, also kicking-off of the data collection phase.
SRB published an overview of the resolution tools available in the Banking Union and their impact on a bank’s ability to maintain continuity of access to financial market infrastructure services in resolution.
EBA is consulting on the implementing technical standards for Pillar 3 disclosures on environmental, social, and governance (ESG) risks, as set out in requirements under Article 449a of the Capital Requirements Regulation (CRR).
ESAs Issue Advice on KPIs on Sustainability for Nonfinancial Reporting