RBNZ Announces Initiatives in Response to COVID-19 Pandemic
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.
LSAP Program
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.
Related Links
- 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
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Nick Jessop
Scenario modeling expert; risk management specialist; quantitative financial modeler
Previous Article
CSSF Updates Reporting Requirements for Credit InstitutionsRelated Articles
OSFI Issues Phase2 Consultation on Climate Scenario Exercise for Banks
The Office of the Superintendent of Financial Institutions (OSFI) recently announced a consultation on the second phase of the Standardized Climate Scenario Exercise (SCSE) for banks and other financial institutions it regulates in Canada.
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
