RBNZ announced that it has signed the IBOR Fallbacks Protocol recently published by ISDA. RBNZ stated that, as a market participant, this is an important step for RBNZ to support an effective and efficient transition away from LIBOR and other key interbank-offer rates (IBORs) by the end of 2021. RBNZ also announced regulatory delays and other developments owing to the COVID-19 crisis; these announcements relate to the Capital Review implementation timing and consultation, loan-to-value ratio restrictions, and dividend restrictions.
RBNZ announced that it is further delaying the start of increases in bank capital until 2022 to allow banks continued headroom to respond to the effects of the COVID-19 pandemic and to support the economic recovery. This delay supports other actions that RBNZ has taken to cushion the initial economic blow of COVID-19 by promoting cash flow and confidence in the financial system. The changes mean the increase in the Prudential Capital Buffer will not begin until July 2022. RBNZ will reconfirm this timing near the end of 2021 and will consider making further amendments to the timing if the conditions warrant it. Other aspects of the capital reforms will proceed from July 01, 2021, including the new rules around capital instruments. Other regulatory announcements are as follows:
- In December 2020, RBNZ will consult about re-instating the loan-to-value ratio, or LVR, restrictions on high-risk lending, with effect from March 01, 2021. The loan-to-value ratio restrictions are used to reduce the risks to financial stability from higher-risk lending. The restrictions were removed in May to ensure that credit could flow and that they did not have an undue impact on the mortgage deferral scheme implemented in response to the COVID-19 pandemic.
- Restrictions on dividends and redeeming non-Common Equity Tier 1 (CET1) capital instruments that were put in place in April 2020 will be retained until March 31, 2021 or later, if required.
- RBNZ wrote to insurers advising that it has updated expectations on dividends. RBNZ expects that insurers will only make dividend payments if it is prudent for that insurer to do so, having regard to their own stress testing and the elevated risks in the current environment.
Keywords: Asia Pacific, New Zealand, Banking, Insurance, Benchmark Reforms, Fallback Protocol, Basel, Regulatory Capital, LTV, Dividend Distribution, IBOR, COVID-19, ISDA, RBNZ
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