New Zealand delays tightening bank lending rules

New Zealand’s central bank will delay an increase in the core funding ratio to 75 percent from 70 percent by about six months to Jan. 1, 2013.

“Conditions in global funding markets have deteriorated,” the central bank said in the report. “It would have been very difficult to place new longer-term unsecured debt issues over the past three months as the sovereign debt crisis played out.”

The central bank introduced the ratio in July to reduce local banks’ reliance on short-term debt raised overseas, intending to counter the impact of that funding getting frozen. The European sovereign debt crisis is limiting access to term debt markets again, it said today.

“Many households and farmers remain highly leveraged, which leaves them vulnerable to a sharp slowdown in global growth,” central bank Governor Alan Bollard said in the report.

“The Reserve Bank also has the capacity to provide exceptional liquidity support to the banking system should the global market conditions deteriorate further, although it is not expected this will be necessary.”
Strained Markets

About NZ$15 billion or $11.7 billion of debt that currently qualifies as core funding will no longer do so over the next 12 months, the central bank estimated. New issues of long-term debt or additional retail funding will be needed, and the cost of that debt is likely to rise, it said.

“The resolution of the European sovereign debt crisis is likely to take some time and bank funding markets are likely to continue to experience strain until a credible resolution occurs,” the bank said.

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