NAB's BNZ has stopped approving new low-deposit mortgages as it struggles to slow lending to meet a new Reserve Bank of New Zealand speed limit within an initial six-month window.BNZ announced this week it had cancelled about 150 pre-approvals for high loan-to-valuation ratio loans written before the speed limit was imposed on October 1. BNZ chief executive Andrew Thorburn told Banking Day that BNZ had also stopped issuing pre-approvals for new loans with LVRs over 80 per cent because the conversion rate for pre-approvals made before October 1 was higher than expected.Speaking after releasing BNZ's results for the year to September 30, Thorburn said inquiries for high LVR loans had been high through September and October.CBA's ASB cancelled all pre-approvals for high LVR loans in late September, forcing many borrowers on to other banks, including BNZ.Thorburn said: "As we've seen conversion rates staying higher than we thought and below 80 per cent being lower than we thought, we've had to slow down demand, and at the moment we're not really taking any new applications at all for above 80 per cent lending."The Reserve Bank's speed limit approach, which is a form of macro-prudential control, is designed to limit the growth of high LVR loans rather than ban them outright. The speed limit was set at 10 per cent of new mortgage flow during an initial six-month window, down from as much as 30 per cent before the limit. It then reverts to a three-month window.But loans approved before the new policy are converting into fully drawn down loans at higher rates than banks expected, forcing banks to slam on the brakes more than forecast."The impact is quite significant out in the market," Thorburn said. "That's quite a choking of finance to that part of the market [above 80per cent LVR]," he said.Thorburn said the Reserve Bank's policy was controversial and he was not sure it would work in the longer run, although it was having a significant effect in the short run. "I'm not sure it's going to have the impact they want because of the combination of supply side responses taking time, and demand continuing to be strong because of the population growth in Auckland and the falling number of people per house means there's demand for houses."That's working against them, but it's certainly had a short-term impact because we're not doing any above 80 per cent lending."Thorburn questioned the Reserve Bank's argument that the speed limit was needed to avoid damage to banking stability in the event of any slump in house prices. "This one was always a controversial issue because the banking system is stable and stronger than it was pre-the GFC. Funding mechanisms and capital levels are so much more positive. If there's going to be an issue with the bank it's going to be a liquidity driven event, which is going to be driven by a global event," he said."Asset quality and recessions and downturns in the past haven't threatened the banking sector."