RBNZ: No surprises in the November Financial Stability Report – ANZ

ANZ analysts point out that in its November 2019 Financial Stability Report, the RBNZ kept loan-to-value ratio mortgage lending restrictions unchanged, highlighting the risk of a resurgence in higher-risk lending given low interest rates.

Key Quotes

“The New Zealand’s financial system remains “resilient” but higher bank capital buffers are nonetheless deemed necessary to improve “longer-term” resilience. The financial system is still vulnerable to tail risks stemming from highly indebted households and dairy farms, and global risks are considered to have increased since the May report.”

“A portion of the document focused on the effects of very low interest rates on housing valuation and bank profitability, and concerns over the resiliency of the insurance sector. But in the end, this is just the warm-up act for the main event; the RBNZ’s final bank capital decision on 5 December.”

“The New Zealand’s financial system remains “resilient” but higher capital buffers are nonetheless deemed necessary to improve “longer-term” resilience.”

“The RBNZ left LVR restrictions unchanged, as we had expected. The RBNZ noted that housing debt risks have stabilised, but prolonged low interest rates could lead to a resurgence in higher-risk lending. This decision seems prudent given the substantial falls in mortgage rates over the past year, and clear signs that the housing market is reigniting.”