Mahi Tahi: Working together to ensure cash-flow and confidence
Last update: 2 December 2020
We are working closely with the whole of Government and industry to keep our financial system stable ensuring foreign exchange, debt and money markets are operating efficiently and at low cost. We are keeping cash-flow moving around the economy – between banks, firms, households, and the Government.
We’ve got a range of initiatives in place to respond to COVID-19.
Monetary Policy: we’re keeping interest rates low to build confidence and enable cheaper lending for businesses and households
We’ve lowered the Official Cash Rate from 1 percent to 0.25 percent and we’re committed to keep it there for at least the next year.
We are keeping long-term interest rates down by buying up to $100bn of bonds in the secondary market by June 2022 through our Large scale asset purchase (LSAP) programme. We have also introduced a Funding for lending programme (FLP), which allows eligible banks to borrow from us at the OCR.
Financial Stability: we’re ‘banking the banks’ to maximise their access to cash and keep the economy stable
We’re ensuring banks can access enough cash to keep lending at low interest rates (ESAS Tiers, Term Auction Facilities and Term Lending Facility) and providing additional channels for banks to keep funding corporate clients (Corporate Open Market Operations).
We are also consulting on re-instating mortgage loan-to-value ratio (LVR) restrictions, with effect from March 2021. The restrictions were removed in the early days of the COVID-19 pandemic to help banks and their customers who used the mortgage deferral scheme, and to best ensure the flow of credit through the economy. Since then, circumstances in the lending market have improved and we are now observing rapid growth in higher-risk investor lending. As such, it is now appropriate to consider putting restrictions back in place.
More information on:
- New Zealand's financial system supported by health, fiscal and monetary policy responses
- Further regulatory steps to promote cashflow confidence and stability
- Financial system will benefit supporting economic recovery
- Reserve Bank removes LVR restrictions for 12 months
- ESAS Tiers and Term Auction Facilities
- Corporate Open Market Operations
- Term Lending Facility
- Frequently asked questions about financial stability
- Frequently asked questions about LVR
Meeting the needs for access to cash: we’re making sure there’s plenty of cash and it’s safe to use
We’ve made provisions to ensure cash is well distributed and people can access it all around New Zealand.
We’re monitoring and working closely with cash system players to ensure a stable supply.
We’re working with the Government to support households and businesses
We’ve helped roll out the Government mortgage payment deferrals and business finance guarantee scheme. To help banks and other regulated firms focus on supporting households and businesses, we've also deferred some regulatory initiatives, including the planned increases in bank capital requirements, and we're allowing firms some delays in their reporting and disclosure.
More information on:
- Capital requirements
- Regulatory changes
- Council of Financial Regulators (CoFR) – Deferral of regulatory initiatives affecting the financial sector (PDF 591KB)
- CoFR revised timetable (as at September 2020) of regulatory initiatives affecting the financial sector (PDF 449KB)
- Reserve Bank extending mortgage deferral scheme
- Loan deferrals guidance extension letter to bank (PDF 161KB)
- Regulatory forbearance activity (316KB)
The Government is also supporting households and business directly.
- Helping people maintain cash flow and connection to employment through income support, redeployment and wage subsidies.
- Ensuring viable and important businesses big and small can bridge through the difficulties ahead, through financial support and regulatory tax changes.
The system that distributes cash from the Reserve Bank and out to the public through the commercial banks and their branch and ATM networks is working well.
Financial services, including cash services, are essential services under COVID-19 restrictions.
The Reserve Bank is in regular contact with the major banks’ cash operations and key service suppliers to the cash system. We are monitoring trends and all of us are ready to identify and respond to any issues that might arise during COVID-19 restrictions.
ATM cash deposit and withdrawal facilities and the system that supports them are functioning well and there is plenty of cash available. Cash withdrawals have dropped during COVID-19 restrictions.
Essential services (such as supermarkets and pharmacies) should be accepting cash payments if customers cannot pay using contactless or card methods.
All banks have COVID-19 pages on their websites telling you about assistance and service changes, including branch opening hours.
Retailers offering essential services (such as supermarkets, pharmacies and petrol stations) should be making provision for shoppers who can only pay with cash, but there is no legal requirement for them to do so. Non-essential businesses may be declining cash when they are only permitted to open for contactless service.
There is no legal requirement for businesses to accept cash as long as they let customers know before starting to shop or receive services.
Shoppers who can only pay with cash are more likely to be vulnerable, young, elderly, poor, disabled, or seasonal workers.
Some businesses are balancing the different concerns by asking people to pay with contactless or card payments if possible, and then providing limited checkouts accepting cash for those who have no other way to pay.
Banks are balancing safety, service, and staffing during COVID-19 alert level restrictions – as well meeting their usual obligations to help vulnerable customers, identify customers, and monitor suspicious transactions.
Banks have COVID-19 information along with general product and service information on their websites. You should check these and – if possible – do your business at an ATM, online, or on a phone app or call.
Where banks have limited numbers of branches open or shortened hours they are generally prioritising personal customers who rely on cash for daily purchases, or who cannot use ATMs, cards, apps or online services to meet their banking needs.
Branches may be controlling customer numbers to maintain physical distancing requirements.
Banks may be limiting the size of cash transactions over the counter or asking you to arrange these ahead of time. Large cash transactions by a few customers during short opening hours may reduce the number of customers who can be served or mean that cash is not available for the other customers who rely on it. Large cash withdrawals or deposits are also a robbery and loss risk, particularly for customers.
Arrangements for business customers to deposit takings or withdraw change orders may be different due to COVID-19 impacts or unrelated changes to service offerings or terms. Check your bank’s website for COVID-19 and general business customer products and service information, or talk with them online or on the phone to discuss your options.
Be kind to bank staff. If they cannot resolve an issue for you or put you in touch with someone who can, then please use your bank’s complaints process - generally found under “Contact Us” on its website.
Try another ATM nearby, and remember you can use any bank’s ATM. You won’t be charged a fee just for using another bank’s ATM. ATMs are an essential service, and you may travel – including by public transport – to an ATM close to home.
It is not unusual for ATM’s to close down occasionally for any number of reasons. Some street-facing ATM’s are now more difficult to fill as they require entry through a business that may be closed. Naturally, ATMs located inside premises that are currently closed cannot be used.
Banks are offering a wide range of services online and over the phone, check your banks website for the appropriate phone number to call.
Details of branch opening hours – as well as ATM locations – should be on banks’ websites.
There is no need to “stash your cash”. Withdrawing large amounts of cash risks loss or robbery. Essential service businesses which are open generally prefer you to pay with contactless or card payments if you are able – rather than using cash. The overall banking system remains safe and sound.
It is generally a good idea to have some cash on hand should you not be able to use a card for any reason, however electronic payment systems are resilient. If power or data services are disrupted then service stations and supermarkets are unlikely to be able to process any transactions, including cash payments.
Yes, cash is safe to use when used responsibly. Using cash responsibly means washing your hands afterwards, as you would after touching any surface touched by someone else.
We understand that some shoppers and retailers are preferring to avoid cash transactions at the moment to speed up transactions and reduce physical contact and face time.
Cash can and should continue to be accepted, but retailers are not legally required to accept cash. We know that there are some people, who are generally more vulnerable, who cannot pay without using cash.
Everyone needs to remember that all shopping and payment methods involve surface contacts and good hand hygiene remains essential what ever way you pay or receive payment.
New Zealand’s financial system remains sound and is resilient, with significant capital and liquidity buffers. This means New Zealand’s financial institutions can support people through these tough times.
As the prudential regulator of banks, we have been in constant communication with them and the New Zealand Bankers’ Association and we are confident that they are well placed to respond to the impacts of COVID-19.
We are continuing to monitor developments and we’re ready to act to act to ensure markets, financial institutions and the financial system operate in a stable and efficient manner.
Our financial system is in good shape, with our trading banks having lots of capital and plenty of cash to help customers through these testing times. The Reserve Bank stands ready to act further, with more firepower in reserve to keep the financial taps turned on.
If you’re needing advice on how to manage your funds during these times, we encourage you to discuss this with your bank or with a financial adviser.
The Government has a range of economic response and support measures to help affected individuals and businesses recover from the impacts of COVID-19. To get more information on key COVID-19 support packages and how to access them, check out this resource guide from The Treasury (PDF 1MB) .
Mortgage loan-to-value (LVR) ratio restrictions have been temporarily removed so that banks can support customers under hardship. As part of the Government’s mortgage deferral scheme, which allows deferral of residential mortgage repayments for up to six months, banks raised concerns that capitalisation of principal and/or interest over the deferral period may move some customers into a high LVR loan bracket. We don’t want banks to feel that an increase in LVRs is a barrier to implementing mortgage deferrals, or any other activity that would support lending in the economy.
The decision is effective as of 1 May 2020 and we expect that banks will factor this into their lending decisions at their own discretion.
We consider that removing the LVR restrictions is unlikely to result in a sizeable increase in high-LVR loans, as banks are not expected to have an appetite for such risky lending. We will be monitoring retail banks’ lending as part of our normal supervision activities.
The Reserve Bank does not offer a home loan. As the central bank of New Zealand, we do not offer personal banking services to individuals. You should contact a registered New Zealand bank to see what home loans they can offer to you and/or to know more about what this means for you.
Please note that banks will continue to make lending decisions at their own discretion. They will apply their own lending standards, based on their risk appetite, incorporating the regulations that the Reserve Bank has set, including the recent removal of LVR restrictions. This does not mean that any particular bank will increase its appetite for high LVR lending – their decisions will depend on the borrowers’ circumstances and the individual bank’s assessment of risk. Your best option would be to talk to a number of banks to compare their home loan offerings.
The temporary removal of LVR restrictions is not targeted at any one sector of society, rather it is to fulfil the Reserve Bank’s wider financial stability mandate. While first home buyers may benefit from this decision, that is not the motivation behind removing LVR restrictions. They are just one of the macro-prudential tools that the Reserve Bank has available to respond to cyclical pressures and the changes to the policy are consistent with the array of policy responses the Reserve Bank has been making in response to the COVID-19 pandemic. This will help borrowers wanting to defer their payments and stop defaults from being triggered.
LVRs were introduced as a temporary macro-prudential financial stability tool in October 2013 and have been revised over time. This proposal does not indicate that the effectiveness of the tool has run its course, rather it is appropriate to release such tools in material downturns. We reviewed the effectiveness of the LVRs in 2019 and found that they played an important role in boosting resilience. This means there are fewer stability risks associated with an economic downturn than would otherwise have been the case – if the recent past had seen much larger increases in LVR lending there would be more households exposed to a sharp downturn.
We will review the decision, factoring in feedback and lending activity from retail banks over the next 12 months as the economic impact of COVID-19 becomes clearer. While we’ve eased the restrictions completely for the next twelve months, we will review the most appropriate setting for LVRs in a year’s time.