FXStreet (Mumbai) – The Reserve Bank of New Zealand’s (RBNZ) proposal to increase the amount of capital that banks will need to hold against investment loans for residential properties is credit positive for these institutions, Moody’s Investor Service said on Tuesday.
According to the RBNZ’s proposal, investment property loans will be treated as a separate asset class with higher capital requirements relative to owner-occupied loans, adding to the already strong capital buffers of New Zealand banks. The Common Equity Tier 1 ratio of the banks averaged 10.8% in December 2014.
Daniel Yu, Moody’s assistant vice president and analyst explained, “The requirements are also credit positive for New Zealand’s covered bond programs, for which our assessments incorporate the quality of the issuing banks,”
“These steps would particularly benefit New Zealand’s four major banks, given their large residential mortgage portfolios which, on average, make up over half of their total loans,”
“The more stringent capital requirements being proposed will, as indicated, in turn incentivize banks to tighten their underwriting criteria, as the higher capital requirements will weaken the economics of lending to investors in residential property, who we view as being more risky than owner-occupied borrowers.”
(Market News Provided by FXstreet)