WELLINGTON, Nov. 28 (Xinhua) -- New Zealand Reserve Bank is easing loan-to-value ratio (LVR) restrictions on banks' new mortgage loans, as both mortgage credit growth and house price inflation have eased to more sustainable rates, reducing the riskiness of banks' new housing lending.
While releasing the November Financial Stability Report on Wednesday, Reserve Bank Governor Adrian Orr said risks to New Zealand's financial system have eased over the past six months, but vulnerabilities persist. In particular, households remain exposed to financial shocks due to their large mortgage debt burden.
"If banks' lending standards are maintained, we expect to further ease LVR restrictions over the next few years," Orr said.
Debt levels also remain high in the agriculture sector, particularly for dairy farms, implying ongoing financial vulnerability. Balance sheets need to be further strengthened. In the medium-term, an industry response to a variety of climate change-related challenges appears likely, requiring investment, he said.
While domestic risks have eased, global financial vulnerability has risen. Significant build-ups in debt and asset prices, and ongoing geopolitical tensions, overhang financial markets. This vulnerability is highlighted by the current elevated price volatility in equity and debt markets, according to the governor.
New Zealand's exposure to these global risks has reduced somewhat, as New Zealand banks have become less reliant on short-term and foreign funding, Orr said, adding the domestic banking system remains sound at present.
The banking system remains profitable, reflecting banks' low operating costs and strong asset performance, he added.
