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RBNZ says there's a moral hazard risk with deposit guarantee

There's a “moral hazard risk” the the deposit guarantee scheme could lead some people to chase the higher interest rates offered by non-banks, Reserve Bank governor Adrian Orr told journalists.

Thursday, May 2nd 2024, 5:26AM

by Jenny Ruth

You're right. There is a moral hazard when you provide a blanket guarantee,” Orr said in answer to a question.

That's one of the reasons why New Zealand “has been one of the last countries on this earth” to institute such a guarantee.

The scheme is currently scheduled to take effect from mid-2025 and the RBNZ is still consulting on how it will apply proportionality and what standards institutions will need to meet.

But the ability of new, higher-risk institutions coming into NZ and winning deposits “is extremely low” because they and the existing non-bank institutions in the country will have to comply with the new prudential requirements RBNZ is imposing.

The RBNZ won't be “breathing ongoing life into” institutions that don't comply, Orr said.

RBNZ will also be “making explicit what the government guarantee is or isn't.”

The scheme will guarantee deposits at each institution up to a maximum $100,000 and will be financed through levying financial institutions.

RBNZ's latest financial stability report said non-bank deposit takers (NBDTs) include building societies, credit unions and deposit-taking finance companies.

“With total lending at around $2.2 billion, the sector is small relative to the banking sector in total lending but provides services to a relatively large number of customers,” the FSR said.

As with the banks, new lending by non-banks, particularly by credit unions and building societies, has slowed in the last 18 months.

“This has been driven by higher interest rates, subdued demand for credit and an uncertain economic outlook,” it said.

“As a whole, the NBDT sector continues to build capital buffers and improved efficiency,” it said. The resilence of firms among the NBDTs varies.

“However, some NBDTs continue to face challenges from the softening economic environment and their lack of scale.”

This month, RBNZ plans to consult on four standards for capital, liquidity, disclosure and the depositor compensation scheme and in July it plans to consult on outsourcing, lending, related party exposures, governance, risk management, operational risk, open-bank resolution, general restrictions and branches.

“All standards will apply to both new and existing deposit takers,” the FSR said.

Tags: RBNZ

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AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.14 6.75 6.39
ANZ 8.64 7.74 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.14 6.79 6.65
ASB Bank 8.64 7.14 6.75 6.39
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
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Lender Flt 1yr 2yr 3yr
BNZ - Classic - 7.14 6.79 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 7.74 7.39 7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 6.79 - -
Co-operative Bank - Owner Occ 8.40 6.99 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.49 7.29 7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.89 6.55 6.35
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.69 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.79 7.39 7.25
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 7.99 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 6.99 6.79 6.65
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Nelson Building Society 9.00 7.75 7.35 -
Pepper Money Advantage 10.49 - - -
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Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 8.09 7.59 7.29
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 9.09 8.59 8.29
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.74 7.29 6.59
SBS Bank Special - 7.14 6.69 5.99
SBS Construction lending for FHB - - - -
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Select Home Loans 9.24 - - -
TSB Bank 9.44 7.79 7.55 7.45
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TSB Special 8.64 6.99 6.75 6.65
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Unity First Home Buyer special - 6.55 6.45 -
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Westpac 8.64 7.89 7.35 7.25
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.29 6.75 6.65
Median 8.64 7.21 7.29 6.65

Last updated: 20 May 2024 10:01am

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