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Financial News: RBNZ Cautious On Household Indebtedness

RBNZ Cautious On Household Indebtedness

05/29/2019 - 08:39:00 (RTTNews)

(RTTNews) - The Reserve Bank of New Zealand expressed concern over high indebtedness of households and dairy farms, and maintained its loan-to-value ratio setting unchanged despite a cooling property market.

In its semi-annual Financial Stability Report, released Wednesday, the central bank said some households and dairy farms will face financial problem if their incomes fell or costs increase as they are burdened with large debt.

Further, the bank noted that the loan-to-value ratio settings remain appropriate for now as household risks have not changed much over the last six months. The restrictions are reviewed every six months.

Michael Gordon, a senior economist at Westpac, said the RBNZ will continue to ease the LVR restrictions over time, as it moves away from a reliance on 'macroprudential' polices in favor of 'microprudential' measures such as bank capital requirements.

The most concerning global risks relate to high asset prices and debt levels in many large countries that could pose problems to New Zealand's financial system, the bank observed.

Further, RBNZ called for gradually raising capital buffers to make the banking system safer. This indicates evidence that the costs of bank failures are higher than previously understood.

The bank is expected to announce its decision on capital buffers by the end of November.

RBNZ advised financial institutions to ensure that they have adequate plans to address issues related to them. The financial system must also adapt to longer-term risks and the changing competitive and regulatory environment. According to RBNZ, New Zealand's financial system is resilient to a broad range of economic risks, but more work is needed to make the system more efficient.

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