RBNZ refines definitions of loans terms to ensure compliance

RBNZ refines definitions of loans terms to ensure compliance with LVR restrictions

By Tina Morrison

Sept. 20 (BusinessDesk) – New Zealand’s Reserve Bank is refining definitions of loans, valuations and properties to ensure banks implement new restrictions on high debt loans consistently.

The central bank today released a consultation paper for banks on proposed changes to language in its rules governing capital requirements. Following feedback from banks, it expects to implement the changes in the first quarter of next year.

The Reserve Bank is requiring banks from next month to restrict high loan-to-value ratio mortgages in an attempt to take the heat out of the property market and avoid an asset price bubble that would pose a risk to financial markets. The effectiveness of the new policy depends on consistent and clear definitions, the central bank said in its consultation paper today.

The central bank plans to keep close tabs on lenders as it implements the new regime to ensure they stick to the spirit of the new rules, rather than the letter of the regulations, to ensure the policy isn’t undermined.

The Reserve Bank proposes including credit card debt facilities and personal loans in the mix when banks consider mortgage lending on a property because of the risk that borrowers could use that lending as part of their deposit, thereby avoiding LVR restrictions.

The central bank also wants to firm up the requirement for independent property valuations when determining an LVR ratio and ensure that triggers for a new valuation would be applied whether prices were rising or falling.

Other proposed changes include how to measure loan-to-value ratios when there are several securities or borrowers and how to define whether a property is residential or commercial. Submissions on the proposals are due Oct. 25.

(BusinessDesk)

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