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FACTBOX-How NZ central bank's new funding programme will work

WELLINGTON, Nov 11 (Reuters) - New Zealand’s central bank will launch a new programme from December that is expected to reduce lenders’ funding costs and encourage them to offer cheaper loans to parts of the economy that badly need it.

Here’s what is known about the new scheme:

-- RBNZ officials said the maximum likely size of the funding-for-lending programme (FLP) could be about NZ$28 billion ($19.28 billion), depending on the take-up.

-- RBNZ said the scheme will offer loans to the banks for three-year terms, with a floating interest rate linked to the prevailing official cash rate.

-- The loans will be offered against high quality collateral provided by the banks, such as New Zealand government bonds and Internal Residential Mortgage-Backed Securities (I-RMBS).

-- The size of the programme was set at up to 4% of each eligible lender’s total loans and advances to New Zealand households, private non-financial businesses and non-profit institutions that serve households.

-- A conditional additional allocation will be available providing NZ$0.50 of funding for every NZ$1 increase in the stock of loans, up to another 2% of eligible loans.

-- Loans will be available for the next 18 months, with the additional allocation available for an extra six months after that.

-- RBNZ said the FLP is designed to lower funding costs and has encouraged recent declines in these costs to be passed through to lower-income household and business borrowing costs.

-- RBNZ said the FLP is similar to schemes implemented in other jurisdictions such as Australia, the UK and the euro zone.

-- ANZ Bank said in a note the scheme would likely help the housing market through lower retail interest rates more than it would help business investment in the near term, given firms’ reluctance to invest until the economic outlook becomes clearer.

-- Kiwi Bank said in a note the success of the FLP will help determine the RBNZ’s next policy decision and whether it needs to take the cash rate below zero. ($1 = 1.4520 New Zealand dollars) (Reporting by Praveen Menon; Editing by Sam Holmes)

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