IMF says high New Zealand household debt a risk to stability

WELLINGTON: The International Monetary Fund (IMF) said on Tuesday that rising levels of household debt are a risk to New Zealand's financial stability, while the country's central bank said it was considering increasing bank capital requirements.


The IMF said the Reserve Bank of New Zealand (RBNZ) should be allowed to include debt-to-income limits in its toolkit, a measure that must be approved by the government and that the central bank has already requested.


"With high household debt, you worry about the amplification of large external shocks," Thomas Helbling, the IMF mission chief for New Zealand, told reporters in Wellington.


New Zealand's economy, which is heavily reliant on international trade, is growing faster than almost any other developed nation. Official interest rates are at a record low of 1.75 percent, and the central bank has indicated it could hold rates for two years or more as it grapples with stubbornly low inflation while trying not to stoke an already hot housing market.


The IMF said it expected household debt vulnerabilities to stabilize in the medium term, but to remain high. It also said it expected house prices to moderate over time, but to remain at comparatively high levels to international peers.


In the addition, the IMF said in its report that "bank balance sheet resilience should be strengthened." The IMF report was compiled after consultation with New Zealand authorities and businesses.


RBNZ Deputy Governor Grant Spencer flagged potential increases to bank capital requirements in a speech to the New Zealand Bankers Association in Auckland on Tuesday.


"Higher levels of capital would improve the soundness of the financial system by reducing the likelihood of bank failures," Spencer said. "However, the capital regime could reduce the efficiency of financial intermediation if ratios are pushed too high or standards are made overly complex." - Reuters