RBNZ keeps LVRs tight and a close eye on bank culture

Reserve Bank Governor Adrian Orr. Photo by Lynn Grieveson

The Reserve Bank gave the financial system a clean bill of health in its half-yearly Financial Stability Report today, but said it wanted to see subdued mortgage lending growth sustained before it further eased restrictions on Loan to Value Ratios.

"The financial system vulnerabilities are much the same as we discussed in our previous Financial Stability Report," the bank said in releasing the report.

"Household mortgage debt remains high. However, financial risk has lessened with both lending and house price growth slowing in the last 12 months – in part due to our imposition of loan-to-value (LVR) ratio restrictions," it said.

"This more subdued lending growth needs to be further sustained before we gain sufficient confidence to again ease the LVR restrictions."

This is the first financial stability report under new Governor Adrian Orr. His interim predecessor, Grant Spencer, slightly eased the restrictions last year, prompting a minor re-heating of the market outside of Auckland in particular.

Orr reiterated that the Reserve Bank and the Financial Markets Authority had asked the big banks and insurers for reassurance that they were not following the damaging practices of their parents identified by the Hayne Royal Commission in Australia. The Royal Commission has found widespread cases of undisclosed fee charging, abusive lending and conflicts of interest in banking, funds management and life insurance.

Finance Minister Grant Robertson and Commerce and Consumer Affairs Minister Kris Faafoi announced they met with Orr and FMA CEO Rob Everett last night to discuss their findings on bank and insurer cultures in New Zealand.

"We have seen no evidence to date of the systemic problems that prompted the Australian inquiry mbut we are happy the FMA and RBNZ have a continuing programme of work," Faafoi said.

Orr is scheduled to appear at an 11 am news conference on the Financial Stability Report, and after 1pm at Parliament's Finance and Expenditure select committee to give MPs a briefing on the report and the inquiries into bank and insurer behaviour.