The bank also shares its macroprudential policy experience during COVID-19
In a comprehensive reflection spanning a decade of utilising macroprudential policy, the Reserve Bank of New Zealand has released a bulletin, underscoring the positive impact of loan-to-value ratio (LVR) restrictions on enhancing the resilience of the country’s financial system.
The analysis, conducted for a study group initiated by the Bank for International Settlements (BIS), aimed to glean insights from the use of macroprudential policies globally to address housing-related risks. The New Zealand experience was examined alongside several other jurisdictions.
Given the significance of housing-related risks for financial stability, RBNZ has maintained a keen focus on the matter. With mortgages constituting more than half of bank lending and with household debt relatively high compared to many developed economies, managing housing-related risks is imperative.
RBNZ said the implementation of LVR restrictions in 2013 played a pivotal role in curbing higher-risk lending practices that were accumulating on banks’ balance sheets. This strategic move aimed to fortify the banking sector against vulnerabilities associated with housing risks, particularly potential corrections in house prices.
“LVR restrictions have complemented other prudential policies in building greater resilience in the financial system over the past decade,” RBNZ said in a media release. “They have strengthened households’ equity positions and reduced potential losses for the financial system.”
The bulletin also sheds light on RBNZ’s experience with macroprudential policy amid the COVID-19 pandemic, highlighting the tool's value in containing debt-servicing risks during challenging economic times.
As part of ongoing efforts, RBNZ is actively preparing a debt-to-income (DTI) tool, and banks have been urged to be operationally ready for a potential DTI restriction slated for the coming year.
For the RBNZ media release, click here. An overview of the collective findings is accessible on the BIS website. You can also read the RBNZ bulletin: Reflections on a decade of using macroprudential policy.
Get the hottest and freshest mortgage news delivered right into your inbox. Subscribe now to our FREE daily newsletter.
