MNI BRIEF: RBNZ Returns Bank Funding Ratios To Pre-COVID Level

The Reserve Bank of New Zealand will increase the core funding ratio requirement for commercial banks to the previous level of 75% from the beginning of 2022 as the bank warned of ongoing vulnerability in the housing market.

The RBNZ's Financial Stability Report, released on Wednesday, shows the central bank remains concerned at the "unsustainable' 30% rise in house prices over the last year. "Strong demand for housing has pushed house prices above their sustainable level, increasing the chance of a correction," the report said.

"Recent buyers are borrowing more relative to their income and may be vulnerable to higher mortgage rates or a fall in house prices."

The RBNZ has already increased Loan-to-Value ratios for borrowers, but is also concerned about the resilience of the financial sector in the case of a rise in mortgage defaults, and cited house prices in hiking rates, see: MNI STATE OF PLAY: RBNZ Hikes Rates, Signals More To Come. The central bank, which is also NZ's prudential regulator, cut the core funding ratio to 50% in March 2020 as one of its measures to stimulate lending and maintain the level of economic activity.