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RBNZ confirms macroprudential tools

The Reserve Bank says it agrees with those who say loan-to-value ratio “speed limits” are a better way of implementing restrictions than blanket rules.

Monday, May 20th 2013, 6:00AM 1 Comment

by Susan Edmunds

It has reported back on the results of its public consultation on proposed macroprudential tools and confirmed it is adding loan-to-value restrictions, a countercyclical capital buffer, and adjustments to the core funding ratio and sector capital requirements to its toolkit to counteract asset price bubbles and financial system instability.

It said the tools would be deployed only when necessary and it was hoped that sometimes simply a warning from the Bank that it was considering using the tools would be enough to curb problem credit growth.

Three submitters told the Bank that constraining the share of high-LVR lending banks were allowed would be more appropriate than restricting low-equity lending in general.

The Bank said it agreed that this was an appropriate way to allow banks to continue to lend to credit-worthy borrowers. “If we were to implement LVR restrictions, we would favour this approach in the first instance.”
But it said it would not discount blanket LVR caps.

And it said it expected LVR restrictions to be applied across-the-board, not targeted to investors or problem areas, as some submitters suggested. “Although LVR restrictions overseas have sometimes exempted first-home buyers, this might only be desirable if first-home buyers were not driving a substantial part of the high-LVR borrowing.”

It said targeting restrictions to regions was possible but would result in practical difficulties.

But it said it was not ruling out targeting restrictions if risks were found in particular segments of the market. “The Reserve Bank is currently requesting a breakdown of high-LVR housing lending from the banks by borrower type that may be used to help assess the pattern of high-risk borrowing in the housing sector.”

Banks would be given at least two weeks’ notice on restrictions on high-LVR lending, which some have said is not enough.

A number of other submitters said a debt servicing calculation would be better than LVR restrictions. The Reserve Bank said it was not ruling that out as a possibility in future.

Submitters told the bank that changes to core funding ratios, a counter-cyclical buffer or new sectoral capital requirements could result in higher lending rates but there were other factors that could negate their impact. “When competition is strong, there might be little pass-through to prices,” the Bank noted.

The Bank admitted  that, apart from LVR restrictions, its tools would have a weak impact on dampening asset price bubbles. “It bears emphasising that the primary purpose of such tools is expected to be to build additional resilience in the banking system.”

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Comments from our readers

On 20 May 2013 at 7:32 pm Amused said:
"It said the tools would be deployed only when necessary and it was hoped that sometimes simply a warning from the Bank that it was considering using the tools would be enough to curb problem credit growth."

Someone call the publishers at Oxford Dictionary. The boffins at the Reserve Bank have just given us a new definition of optimism.

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Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA - Back My Build 5.44 - - -
AIA - Go Home Loans 7.99 5.99 5.69 5.69
ANZ 7.89 6.59 6.29 6.29
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 5.99 5.69 5.69
ASB Bank 7.89 5.99 5.69 5.69
ASB Better Homes Top Up - - - 1.00
Avanti Finance 8.40 - - -
Basecorp Finance 9.60 - - -
BNZ - Classic - 5.99 5.69 5.69
Lender Flt 1yr 2yr 3yr
BNZ - Mortgage One 7.94 - - -
BNZ - Rapid Repay 7.94 - - -
BNZ - Std 7.94 5.99 5.69 5.69
BNZ - TotalMoney 7.94 - - -
CFML 321 Loans 6.20 - - -
CFML Home Loans 6.45 - - -
CFML Prime Loans 8.25 - - -
CFML Standard Loans 9.20 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 5.79 - -
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Owner Occ 7.65 5.99 5.75 5.69
Co-operative Bank - Standard 7.65 6.49 6.25 6.19
Credit Union Auckland 7.70 - - -
First Credit Union Special - 6.40 6.10 -
First Credit Union Standard 8.50 7.00 6.70 -
Heartland Bank - Online 7.49 5.65 5.55 5.55
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society ▼8.60 6.75 6.40 -
ICBC 7.49 5.99 5.65 5.59
Kainga Ora 8.39 7.05 6.59 6.49
Kainga Ora - First Home Buyer Special - - - -
Lender Flt 1yr 2yr 3yr
Kiwibank 7.75 6.89 6.59 6.49
Kiwibank - Offset 8.25 - - -
Kiwibank Special 7.75 5.99 5.69 5.69
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 8.44 5.95 6.09 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
SBS Bank 7.99 6.95 6.29 6.29
SBS Bank Special - 6.15 5.69 5.69
SBS Construction lending for FHB - - - -
Lender Flt 1yr 2yr 3yr
SBS FirstHome Combo 5.44 5.15 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.75 - - -
TSB Bank 8.69 6.49 6.49 6.49
TSB Special 7.89 5.69 5.69 5.69
Unity 7.64 5.99 5.69 -
Unity First Home Buyer special - 5.49 - -
Wairarapa Building Society 8.10 6.05 5.79 -
Westpac 8.39 6.89 6.39 6.39
Westpac Choices Everyday 8.49 - - -
Westpac Offset 8.39 - - -
Lender Flt 1yr 2yr 3yr
Westpac Special - 6.29 5.79 5.79
Median 7.99 6.02 5.79 5.69

Last updated: 20 November 2024 9:45am

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