RBNZ has announced a range of initiatives in response to the COVID-19 crisis. RBNZ decided to remove mortgage loan-to-value ratio (LVR) restrictions for 12 months. It also introduced a mortgage holiday, business finance support schemes, and a longer-term funding scheme for the banking system. Additionally, RBNZ is deploying another tool to provide additional liquidity to the corporate sector and support smooth market functioning. A new weekly Open Market Operation will provide liquidity in exchange for eligible Corporate and Asset-Backed securities. Furthermore, the Monetary Policy Committee has decided to implement a Large Scale Asset Purchase (LSAP) program of New Zealand government bonds. RBNZ also updated the list of regulatory initiatives that are being deferred during the COVID-19 crisis.
Removal of LVR Restrictions
RBNZ decided to remove mortgage LVR restrictions for 12 months. The decision aims to ensure that LVR restrictions did not have an undue impact on borrowers or lenders as part of the mortgage deferral scheme implemented in response to the COVID-19 pandemic. A short, seven-day, consultation period was completed by RBNZ following the announcement on April 21, 2020 of the proposal to temporarily remove LVR restrictions. RBNZ released a document on regulatory impact assessment that provides an analysis of the options by RBNZ for LVR restrictions, following the onset of the COVID-19 pandemic in New Zealand and around the world. The assessment concludes that removing LVR restrictions now does not weaken the resilience of the system. Rather, removing LVR restrictions now supports financial stability by removing one potential obstacle to the flow of credit in the economy, helping to soften the downturn. The decision is effective as of May 01, 2020.
Longer-term Funding Scheme for Banking System
RBNZ introduced a Term Lending Facility (TLF), a new longer-term funding scheme for the banking system, in support of the Government’s Business Finance Guarantee Scheme to help promote lending to businesses. Under the facility, RBNZ will offer to lend funds to banks at the Official Cash Rate of 0.25%, fixed for three years. Access to the funds will be linked to each bank's lending under the Business Finance Guarantee Scheme and the facility will require approved eligible collateral to be pledged against the funds. The facility will be available to use for six months, starting from May 26 and ending on October 29.
RBNZ also announced a Term Auction Facility that gives banks the ability to access term funding, with collateralized loans available out to a term of 12 months. Additionally, RBNZ Deputy Governor and General Manager for Financial Stability, Geoff Bascand announced that, to further support the stability of the financial system, New Zealand’s retail banks have agreed that during the period of COVID-19 crisis there will be no payment of dividends on ordinary shares and that they should not redeem non-CET1 (or common equity tier 1) capital instruments.
Mortgage Holiday and Business Finance Support Scheme
RBNZ announced a major financial support package for home owners and businesses affected by the economic impact of COVID-19 pandemic. The package will include a six-month principal and interest payment holiday for mortgage holders and small and medium enterprise (SME) customers whose incomes have been affected by the economic disruption from COVID-19. The specific details of this initiative are being finalized and agreed urgently and banks will make these public in the coming days. RBNZ has agreed to help banks put this in place with the appropriate capital rules. In addition, it has decided to reduce the core funding ratios of banks from 75% to 50%, further helping banks to make credit available.
The Business Finance Guarantee Scheme will provide short-term credit to cushion the financial distress on solvent small and medium-sized firms affected by the COVID-19 crisis. The scheme will include a limit of NZD 500,000 per loan and will apply to firms with an annual turnover of between NZD 250,000 and NZD 80 million. The loans will be for a maximum of three years and expected to be provided by the banks at competitive, transparent rates. The government will carry 80% of the credit risk, with the other 20% to be carried by the banks.
Under the program, up to NZD 33 billion of New Zealand government bonds will be purchased, across a range of maturities, in the secondary market over the next 12 months. The program aims to provide further support to the economy, build confidence, and keep interest rates on government bonds low. The Monetary Policy Committee will monitor effectiveness of the program and make adjustments and additions if needed.
- Press Release on LVR Restrictions
- Press Release on Proposal to Remove LVR Restrictions, April 21, 2020
- Press Release on Long-term Funding Scheme
- Press Release on Mortgage holiday and Business Finance Support Scheme
- Press Release on LSAP Program
- Regulatory Impact Assessment on Removal of LVR Restrictions
- Details of Term Lending Facility
- Updated List of Deferred Regulatory Initiatives (PDF)
- Overview of COVID-19 Relief Measures
Keywords: Asia Pacific, New Zealand, Banking, COVID-19, LVR Restrictions, Liquidity Risk, SME, Regulatory Capital, Credit Risk, Loan Moratorium, Loan Guarantee, RBNZ
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous ArticlePRA Clarifies Regulatory Treatment of COVID-19 Loan Scheme Under CRR
The European Commission (EC) published the Delegated Regulation 2021/1527 with regard to the regulatory technical standards for the contractual recognition of write down and conversion powers.
The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to provide guidance to authorized deposit-taking institutions on the interpretation of APS 120, the prudential standard on securitization.
The Single Resolution Board (SRB) published a Communication on the application of regulatory technical standard provisions on prior permission for reducing eligible liabilities instruments as of January 01, 2022.
The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to clarify the regulatory capital treatment of investments in the overseas deposit-taking and insurance subsidiaries.
The European Banking Authority (EBA) published the final report on the guidelines specifying the criteria to assess the exceptional cases when institutions exceed the large exposure limits and the time and measures needed for institutions to return to compliance.
The Prudential Regulation Authority (PRA) issued the policy statement PS20/21, which contains final rules for the application of existing consolidated prudential requirements to financial holding companies and mixed financial holding companies.
The European Banking Authority (EBA) revised the guidelines on stress tests to be conducted by the national deposit guarantee schemes under the Deposit Guarantee Schemes Directive (DGSD).
The European Commission (EC) announced that Nordea Bank has signed a guarantee agreement with the European Investment Bank (EIB) Group to support the sustainable transformation of businesses in the Nordics.
The Hong Kong Monetary Authority (HKMA) issued a circular, for all authorized institutions, to confirm its support of an information note that sets out various options available in the loan market for replacing USD LIBOR with the Secured Overnight Financing Rate (SOFR).
The Office of the Comptroller of the Currency (OCC) issued a new "Problem Bank Supervision" booklet of the Comptroller's Handbook. The booklet covers information on timely identification and rehabilitation of problem banks and their advanced supervision, enforcement, and resolution when conditions warrant.