New Zealand's banking regulator is set to remove lending restrictions on the country's prudentially regulated mortgage providers.Details of the proposed move were revealed on Tuesday by the Reserve Bank of New Zealand, with the changes likely to be implemented in May.In 2013, New Zealand was the first OECD country to introduce caps on lending to  borrowers with low up-front deposits on geared property purchases.While the restrictions have been gradually eased in recent years, banks currently must limit their exposure to owner occupier borrowers who request loan to value ratios above 80 per cent to no more than 20 per cent of all new lending.The exposure cap on new lending to investment borrowers is even more stringent, with banks having to ensure that 70 per cent LVR loans account for no more than 5 per cent of all new lending to investors.RBNZ deputy governor and general manager of financial stability Geoff Bascand said the proposed changes were in response to economic downturn triggered by the COVID-19 pandemic."LVRs were introduced as a macro-prudential financial stability tool in October 2013 and have been adjusted over time," said Bascand."Adjusting the use and calibration of macro-prudential tools in response to economic conditions is how they are intended to be used."This move will help banks to keep lending to support customers, including with mortgage deferrals."RBNZ will consult with industry participants over the next week before finalising its decision to remove the restrictions.The regulator said that the LVR caps would not be reinstated for at least 12 months to give certainty to banks and customers.The imminent relaxation of the measures comes as a public storm intensifies over ANZ's compliance record in New Zealand.An independent audit of ANZ's compliance with regulatory capital requirements last week found that the bank has been using unapproved internal models to calculate its capital obligations.The audit conducted by Deloitte found that ANZ failed to meet conditions of its Kiwi banking licence by applying inappropriate capital models in its credit cards and institutional banking operations.These new breaches follow the discovery last year that ANZ had been using a non-compliant model to assess its capital requirements for operational risk.Despite these longstanding failures ANZ retains advanced banking status in Australia with the right to internally model its capital requirements.