Featured Product

    RBNZ Survey Assesses Impact of Pandemic on Domestic Credit Conditions

    July 14, 2020

    RBNZ released results of the most recent Credit Conditions Survey, which was conducted out-of-cycle at the end of June to understand how domestic credit conditions have changed post-lockdown. The results show that banks experienced an increase in demand for loans for working capital from small and medium enterprises (SMEs) and corporates to meet fixed expenses. However, the demand for credit for capital expenditure has fallen. Banks reported that they have tightened several lending standards, particularly around serviceability requirements and interest rate margins across more risky sectors. Banks are now closely scrutinizing new lending to sectors directly exposed to the COVID-19 shock and further tightening of lending standards is likely.

    The following are the key highlights of the Credit Conditions Survey in the context of COVID-19 shock:

    • Banks reported a decline in demand for mortgage lending over the first half of 2020 while the mortgage lending standards remained broadly unchanged. Most banks did not report a change in appetite for high-LVR (or loan-to-value ratio) lending despite the temporary removal of restrictions. One bank did note that high-LVR applicants would likely require very strong servicing positions and that property type and location would need to be less susceptible to price declines.
    • Banks reported an increase in SME applications for relief in response to the COVID-induced lockdown along with a modest tightening of credit availability in the SME sector. Banks reported support largely came in the form of suspension of repayments or moves to "interest only" terms, modifications (or waivers) of loan covenants, and temporary liquidity lines for working capital to meet fixed costs. Banks expect this to continue over the second half of 2020. Demand for credit for capital expenditure fell in the first half of the year and banks expect demand to remain muted for the remainder of the year, reflecting deteriorating business confidence.Banks expect many businesses will resize to match the new level of demand, but some SMEs will fail, thus dampening demand for credit.
    • Banks reported high demand for standby liquidity facilities over the first half of 2020, along with a reduced demand for credit for capital expenditure and mergers and acquisitions. Generally, banks expect these trends to continue over the next six months, although some banks expect transactions that were put on hold due to COVID-19 may begin to progress again. Banks also reported a significant increase in requests for covenant relief. Banks noted they approved these requests if the corporate customer had a strong pre-COVID balance sheet. 
    • Banks reported a decrease in demand for commercial property lending during the first half of the year and forecast a significant slowdown over the latter half, particularly for development lending. Banks noted that the greatest uncertainty concerned the impact of COVID-19 on commercial property values. One bank reported that commercial property valuations are difficult to obtain, as valuers are preferring to wait until market evidence exists post COVID-19. Several banks noted that more current valuations will be required and that valuation cycles would be increased.

    The usually biannual Credit Conditions Survey asks banks qualitative questions about changes in credit conditions in bank lending markets. Banks provide separate responses for household, small and medium enterprise, corporate, commercial property, and agricultural lending. The questions focus on observed changes in loan demand and credit availability over the previous six months and expected changes over the next six months. The survey also collects information on how how the lending standards of banks have changed over the past six months. The next quarterly survey will be conducted as usual in September and the results will be released in October 2020


    Related Links

    Keywords: Asia Pacific, New Zealand, Banking, COVID-19, Credit Conditions Survey, Mortgage Lending, SME, Credit Risk, Payment Deferrals, RBNZ

    Featured Experts
    Related Articles
    News

    Regulators Fine Goldman Sachs for Risk Management Failures

    FCA and PRA in the UK, FED in the US, and the authorities in Singapore have fined Goldman Sachs for risk management failures in connection with the 1Malaysia Development Berhad (1MDB).

    October 23, 2020 WebPage Regulatory News
    News

    Canada Hosts International Conference of Banking Supervisors

    BCBS announced that OSFI and the Bank of Canada hosted the 21st International Conference of Banking Supervisors (ICBS) virtually on October 19-22, 2020.

    October 22, 2020 WebPage Regulatory News
    News

    FCA Proposes More Measures to Help Insurance Customers Amid Crisis

    FCA proposed guidance on how firms should continue to seek to help customers who hold insurance and premium finance products and may be in financial difficulty because of COVID-19, after October 31, 2020.

    October 21, 2020 WebPage Regulatory News
    News

    EBA Issues Opinion to Address Risk Stemming from Legacy Instruments

    EBA issued an opinion on prudential treatment of the legacy instruments as the grandfathering period nears an end on December 31, 2021.

    October 21, 2020 WebPage Regulatory News
    News

    ESRB Publishes Non-Bank Financial Intermediation Risk Monitor for 2020

    ESRB published the fifth issue of the EU Non-bank Financial Intermediation Risk Monitor 2020 (NBFI Monitor).

    October 21, 2020 WebPage Regulatory News
    News

    HM Treasury Publishes Policy Statement Amending Benchmarks Regulation

    HM Treasury announced that the new Financial Services Bill has been introduced in the Parliament.

    October 21, 2020 WebPage Regulatory News
    News

    APRA Initiates Action Against a Bank for Liquidity Compliance Breach

    APRA announced that it has increased the minimum liquidity requirement of Bendigo and Adelaide Bank for failing to comply with the prudential standard on liquidity.

    October 21, 2020 WebPage Regulatory News
    News

    PRA Consults on Implementation of Certain Provisions of CRD5 and CRR2

    PRA published the consultation paper CP17/20 to propose changes to certain rules, supervisory statements, and statements of policy to implement elements of the Capital Requirements Directive (CRD5).

    October 20, 2020 WebPage Regulatory News
    News

    US Agencies Finalize Rule to Reduce Impact of Large Bank Failures

    US Agencies adopted a final rule that applies to advanced approaches banking organizations and aims to reduce interconnectedness in the financial system as well as to reduce contagion risks associated with the failure of a global systemically important bank (G-SIB).

    October 20, 2020 WebPage Regulatory News
    News

    US Agencies Finalize Rule on Net Stable Funding Ratio Requirements

    US Agencies (FDIC, FED, and OCC) adopted a final rule that implements the net stable funding ratio (NSFR) for certain large banking organizations.

    October 20, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 6004