RBNZ Publishes Financial Stability Report and Eases LVR Restrictions
RBNZ published the financial stability report for November 2018. The report shows that both mortgage credit growth and house price inflation have eased to more sustainable rates, reducing the riskiness of new housing lending by banks. Consequently, RBNZ is easing loan-to-value ratio (LVR) restrictions on new mortgage loans of banks from January 01, 2019.
The LVR restrictions were introduced in 2013, in response to the rising housing lending risk. From January 01, 2019, up to 20% (increased from 15%) of new mortgage loans to owner occupiers can have deposits of less than 20% and up to 5% of new mortgage loans to property investors can have deposits of less than 30% (lowered from 35%). If banks’ lending standards are maintained RBNZ expects to further ease LVR restrictions over the next few years.
While domestic risks have eased, global financial vulnerability has risen. Significant build-ups in debt and asset prices, and ongoing geopolitical tensions, overhang financial markets. This vulnerability is highlighted by the current elevated price volatility in equity and debt markets. New Zealand’s exposure to these global risks has reduced somewhat, as New Zealand banks have become less reliant on short-term, and foreign, funding. The domestic banking system remains sound. The banking system remains profitable, reflecting banks’ low operating costs and strong asset performance. RBNZ is using this period of relative calm to reassess whether the banking system has sufficient capital to weather future extreme shocks. The preliminary view is that higher capital requirements are necessary, so that the banking system can be sufficiently resilient while remaining efficient. RBNZ will release a final consultation paper on bank capital requirements in December.
While positive overall, banks’ low costs have been partly achieved through underinvestment in core IT infrastructure and risk management systems in New Zealand. This was highlighted in RBNZ's review of bank’s conduct and culture with the Financial Markets Authority. RBNZ will jointly review bank responses to its review in March 2019 and follow up, as required. In addition, CBL Insurance Ltd was placed into full liquidation by the High Court on November 12. Aside from CBL, the overall insurance sector is meeting its minimum capital requirements. However, capital strength has declined and a number of insurers are operating with small buffers. The insurance industry must ensure it has sufficient capital to maintain solvency in all business conditions. The ongoing review of conduct and culture in the insurance sector with the Financial Markets Authority will illuminate the industry’s risk management capability. The review will be released in January 2019.
Related Links
Keywords: Asia Pacific, New Zealand, Banking, Financial Stability, Mortgage Lending, LVR Restrictions, RBNZ
Related Articles
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.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
